The Narendra Modi government’s decision to corner surplus funds from markets regulator Securities Exchange Board of India (SEBI) does not augur well for the markets. The self-proclaimed right-wing government headed by Modi has dealt a body blow to the functioning of SEBI as an independent regulator. The move to subsume at least 75% of the surplus funds lying with SEBI may also not be in sync with the ‘free market economy’ credentials claimed by the BJP-led NDA regime. The Centre’s move also establishes the political leadership’s undeniable role in handling markets, which is completely undesirable. Asking SEBI to seek Finance Minister Nirmala Sitharaman’s clearance for its annual expenses seems to be part of a larger plan by the Modi government to undermine independent institutions of relevance and repute. SEBI Chairman Ajay Tyagi’s protest against the move went unheeded as the government went ahead to formalise it through a Budget proposal. Given that the Finance Bill for 2019-20 has got the Lok Sabha’s approval, the government’s decision to usurp 75% of SEBI’s Rs 3,800 crore surplus funds has come into effect.

Tyagi protested against the move through a detailed letter and pleaded with Finance Minister Sitharaman last week. His arguments were two-fold. First, giving charge of SEBI’s annual expenditure clearance to the finance ministry will give North Block a lever to boss over the market regulator. Second, the Financial Stability and Development Board (FSDB) should take the final call on the end-use of the surplus funds with regulators like SEBI, not the finance ministry. Eyeing SEBI’s surplus funds to mobilise non-tax revenues to manage the government’s fiscal deficit smacks of economic authoritarianism. If the government has its way, the insurance regulator, Insurance Regulatory and Development Authority of India (IRDAI), also may not be spared. IRDAI has about Rs 15,166.47 crore unclaimed deposits of insurers and pensioners. Going by reports, the government may lay its hands on these funds as well as IRDAI’s regulatory fees collected from private and State-run insurers.

Funds with regulators will have to ideally be pumped back into the respective sectors. For instance, SEBI surpluses should be channelled into markets research, development, investor protection and developing institutes of excellence. In fact, ensuring the market regulator’s functional and financial autonomy should have been pushed by the finance minister with a “hands off” approach, rather than poaching into regulatory fees and seeking financial subservience. Alternatively, funds lying with regulators could be utilised to expand and deepen market instruments, expand the regulator’s reach and set up platforms to advise small retail investors. The government has no right on the proceeds of regulators’ fees or surplus.