The Committee on stock exchanges: What has prompted Bimal Jalan’s volte-face on regulation?
Moneylife Digital Team 29 November 2010

In 2007, the former RBI governor was emphatic that regulation should not smother economic growth. But in 2010, why has the Bimal Jalan Committee on stock exchanges produced such a biased report? 

Just three years back, Bimal Jalan, former RBI governor, emphasised the need for the 'important' distinction between regulation and control at a programme called 'Political Economy Constraints in Regulatory Regimes in Developing Countries.' (More here: Mr Jalan's point of view in March 2007 was that control should not overshadow regulation.

Cut to the present. Mr Jalan seems to have done a volte-face as far as his definition of 'regulation' is concerned. We have reported ( and ( on how the Bimal Jalan Committee on stock exchanges (appointed February 2010 to deliberate on governance, ownership, listing of bourses and associated issues) has delivered a set of ridiculous recommendations. In fact, as we have pointed out, the report tabled by this panel is biased in favour of the National Stock Exchange (NSE), and will only help the bourse retain its monopoly position and eliminate any kind of competition from any other exchange in India.
As a Moneylife reader (identified as 'tetali') points out-"What is recommended by the committee headed by Mr Jalan is exactly the opposite (of the former RBI governor's view in 2007). Why this new wisdom?"

Indeed. Why this sudden change of stance from a respected economic bureaucrat? Mr Jalan has had an illustrious career so far-apart from heading the apex bank, he has been chief economic advisor, banking secretary, finance secretary, Planning Commission member-secretary... this is no ordinary curriculum vitae.

But let our readers do the talking. These are, of course, their views and not necessarily those of Moneylife, but the vox populi has spoken out-loud and clear.

Here's what 'Santdaveed' had to say on 27th November on our site: "Shareholding regulations were reviewed and amended only in 2008. What was the need for reviewing them again at this stage? Why were these drastic recommendations made? I think it was the same Bimal Jalan who recommended that VSNL (the erstwhile Videsh Sanchar Nigam Ltd) monopoly in ISP (Internet Service Provider) gateways should go. Why is he trying to protect monopolies now?"

For the purists, this was 'Santdaveed' has to add: "In an undated speech as recorded in the RBI Monthly Bulletin, 12 June 1998, Bimal Jalan had quoted Schumpeter as (follows):

'What is the process through which these technological innovations get transmitted to (a) higher growth trajectory? Let me turn to Schumpeter once more. Schumpeter describes this process as one of creative destruction; in his own words-the fundamental impulse that sets and keeps the capitalist engine in motion comes from the new goods, the new methods of production or transportation, the new markets, the new form of industrial organisation the capitalist enterprise creates. (These) illustrate the same process of industrial mutation that incessantly revolutionises the economic structure from within, incessantly, destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism.'"

As our reader explains, "As can be understood from the above, creating and nurturing monopolies is the antithesis of the above philosophy. Monopolies resist any change, more so a disruptive change. One will wonder-has Mr Jalan ideologically converted into a Nehruvian and Fabian socialist?"

So is laissez-faire now officially dead in India?

Another observation, voiced by Moneylife reader Aniket Narayan, again on 27th November: "On one side, we say capital markets are to be deepened. On the other hand, we are restricting new investors with clauses as mentioned in the report which says there is a cap on the profit and no exit. In such a scenario, we are hampering the growth of the markets itself and these markets are barometers to economic growth. Thus, such ridiculous recommendations are bound to affect the economy in the long run." We needn't add more.

Maybe these lines from Mr Jalan's website ( disclose why he has chosen to oversee the kind of report that has been tabled: "[It] will be a grave mistake to misconstrue the need for economic reforms with a call for less role for Government (our emphasis) or public policy in widening opportunities and creating a positive environment for equitable development."

In other words, we were much better off with the rate of growth in our mixed economy-with Big Government playing a role in each and every part of our lives-if you go by the opinions of our former bureaucrats.  

In this nation, the more things change, the more they remain the same.

1 decade ago
Transparency in Public Life:

Dr. Jalan's recommendations are an attempt to legitimize the NSE-SEBI plan to stall competition in the market. This hypothesis is based on the fact that – Almost all routes are blocked for the aspirants…No listing, Institutional Anchor Investors, Individual 5 per cent shareholding…profitability cap.

Dr. Jalan your observation that – ‘technology has altered the market place so much that need for multiple stock exchanges has been reduced largely’ is nothing but the ‘summary’ of your entire report. Thank you so much for hiding nothing.

Is there any single recommendation which would slightly irritate NSE? I am asking this because this is the ‘litmus test’ of neutrality of this report. Unfortunately, not a single recommendation would displease NSE!

Yes, please do not construe the 'profit cap' and 'salary cap' recommendations are anti-NSE stance. These are very carefully crafted keeping in mind NSE. How I am saying so? This is pure 'Economics' nothing else. Let me explain a little more. Entry into a business is a function of several factors including the opportunity to make profits. For example - If there are two business plan i.e., plan A and plan B and out of this plan B offers larger profit, then certainly the entrepreneur would opt for B, assuming the 'technical know-how' in both cases is known to the entrepreneur. Now, take two sectors - one where the profitability is regulated by government and another where market forces determine the profitability, then certainly economic logic says to opt for sector which is not over regulated by government.

Therefore, in the present case, 'profit cap' recommendation is a signal to deter entry (would never be implemented as long as NSE does not foresee any credible competition). It means if you enter or try to enter, we will bring this recommendation as a regulation/law. As long as, you do not cross the threshold, we will not use this. But, the moment we saw you coming towards us, then we will invoke it instantaneously. This is the biggest anti-competitive stance suggested by Dr. Jalan.

What about 'remuneration' part? Well, some of the existing CEOs are so well entrenched that, salary really does not matter for them. It’s really a threat for the new comers. But, given India's political economy structure, the implementation of such recommendations would not be easy at this point.

Thanks Dr. Jalan for your obsession towards '10 Year G-sec Rate'. It reminded me of your 'RBI' days. 10 - Year G-Sec+ Risk Premium sounds fantastic. Please do not mind. It sounds like I am sitting in a conference in the erstwhile USSR...It is truly hilarious!!!

Dr. Jalan - one final request. I did some search about you. Here is a link

The wiki page says : where have you done your PhD is not known. Could you please let the public know about it. Even your home page only says "Bimal Jalan was educated at Presidency College, Calcutta and Cambridge and Oxford"

This is just for public curiosity. It would be great if you could let us know about the status of your ph.d.

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