The passage of the Banking Laws Amendment Bill and Companies Bill points to a welcome return to sound parliamentary practice.

Most commentators following the protracted journey of the UPA government’s legislative reform efforts would have heaved a sigh of relief at the relatively easy passage of the Banking Laws Amendment Bill and the Companies Bill 2011 days before the Lok Sabha winter session was to end. Relief for those industrial houses waiting outside the RBI’s portals to push their applications for banking licenses through, relief for the beleaguered government starved of some good news on its ability to engage in any constructive activity.

But no one, not even the Opposition, and certainly not economic analysts and those ardent adherents of “reforms”, noticed or remarked upon what the manner in which the two Bills were passed, or the others kept back, meant for Indian democracy. Judging by the events as they unfolded, one could say that the conduct of both the Treasury and Opposition benches represented textbook illustrations of how parliamentary democracy ought to work.

A cheer for Democracy

It was not the economy that emerged the winner at the end of the day so much as Indian political discourse in Parliament. The passage, it would appear, represented a welcome break from two streams of behaviour that have come to define the persona of members of parliament: indifference to the business of the day or rowdy articulation of differences.

This time around, there was a spirit of give and take that marked the entire proceedings leading up to the passage of the Bills.

Consider the banking Bill. The UPA government was keen to push through almost every amendment, including the controversial one about letting banks deal in commodity futures. It was Yashwant Sinha who pointed out an anomaly relating to the new clause: since it had not been discussed by the Standing Committee on Finance, the government would have to either drop the clause or refer it back to the committee for consideration and possible inclusion thereafter.

The UPA dropped it. Finance minister, P. Chidambaram in an on-the-back foot response did say after the session that the Standing Committee was not opposed to the proposals contained in the clause per se since it had recommended it in another Bill. Why then, it should have been sneaked into the Banking Laws Amendment Bill, he did not clarify; but the fact that the government bowed to the Opposition’s insistence on legislative propriety is itself to be acknowledged as a mature compromise.

North Block gamble?

Perhaps there’s more to it than meets the eye. It could be argued that the government had shown strategic foresight by including a clause it was certain the Chairman of the Standing Committee on Finance, Yashwant Sinha would oppose. Offering a skittle for the Opposition to knock down thereby assured the government some ease in the Bill’s passage.

For the Finance Minister in particular, nothing could offer more proof of the government’s commitment to economic revival than the entry of new private banks. Foregoing the futures-trading clause was a small price to pay; dropping the clause that would have kept bank mergers outside the purview of the Competition Commission of India was also very prudent, for it bespoke a commitment to governance. On that count too, the FM scored in establishing the framework for regulation: “RBI will be the regulator for all banking issues, and CCI will be the authority for all anti-competitive practices. We decided in the cabinet that we won’t take out the banking sector from under CCI—that caution of the standing committee has been accepted,” Chidambaram said.

For the Finance Minister, the Banking Laws Amendment Bill’s experience in the Lok Sabha is a sort of double coup; affirming the best traditions of parliamentary democracy in which the Opposition is as much of a lawmaker and second, getting the most important legislative change---for new private banks---endorsed comprehensively.

For quite a while, the FM had been cajoling the central bank to start the process of screening new bank applications, assuring the Governor, D. Subbarao, that the government would give the powers the RBI desired.

The new amendments now waiting to be cleared by the Rajya Sabha include the additional oversight powers over private bank boards the RBI had insisted upon.

Chidambaram can now look the Governor in the eye and ask him to get on with his part of the bargain.

Arguable economic rewards

What will this “reform” whose outcomes depend on a stolid institution such as the RBI operating with set rules (unlike FDI in retail that rests largely on the vicissitudes of provincial politics to bring to fruition), do to an economy with limited prospects of expansion?

The creation of new banks will offer an appearance of movement in one sector that was always on the move, namely the services sector. As large private industrial houses move into retail banking, the sector is likely to witness some internal refinement; more liquidity will flow into real estate and other services segments conducive to rapid but derivative growth such as transport, hotels and, professional services.

Should the banks be permitted futures trading, as they will be in the near future and through another Bill, then the new banks will have their business opportunities already cut out. The organised economy will witness some dynamism that will be touted as the successful outcome of the UPA’s “reform agenda”.

Will the new banks enable financial inclusion? Not likely; if the public sector banks have not been able to spread financial practices far and wide, would private banks do better? The notion that financial sector “reforms” such as the Banking Laws amendment will trigger positive change in the real economic sectors such as agriculture or manufacturing is debatable.

What is not is that the nation after a long time got some evidence that the “political class” can debate reasonably and effect change consensually in that ‘counting house” we call Parliament.

(This article was published on December 21, 2012)
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