FSDC to firm up framework to deal with global crises

A high-level FSDC panel will firm up a crisis management framework to deal with the impact of global financial problems at its meeting in Kolkata later this week.

“We will discuss the Financial Stability Report and decide steps to deal with the global crisis,” said a senior Finance Ministry official ahead of the meeting of the Finance Stability and Development Council (FSDC) sub-committee.

The FSDC sub-committee, which is headed by Reserve Bank Governor D. Subbarao, is scheduled to meet on December 8. The panel includes the heads of regulating agencies like SEBI, IRDA, PFRDA and Finance Ministry officials.

According to sources, the FSDC will also be discussing various scenarios with regard to the sovereign debt crisis in euro zone countries and the possible steps to neutralise the impact of global problems on India.

The agenda for the meeting includes “creation of a framework for decision-making involving the agencies that will be involved in the decision-making process, with clearly defined responsibilities and a mechanism for information exchange and coordination.”

The effort, sources said, would be to develop a mechanism to deal with “sudden shocks” in the balance sheets of financial institutions, which could be on account of natural or man-made crises. The institutions would include banks, non-banking financial companies, mutual funds, primary dealers, merchant bankers and pension funds.

At its earlier meetings, the FSDC sub-committee had asked the regulators to make an assessment of the impact of the sovereign debt crisis on the Indian financial system.

With worsening of the sovereign debt crisis in Europe, especially in countries like Greece and Italy, it has become imperative for India to develop a framework to deal with the problems as the government is not in a position to provide a stimulus to boost growth.

Finance Minister Pranab Mukherjee had recently said, “I am not in a position to provide that level of fiscal stimulus which I was able in 2008-09, but certain policy changes can improve the situation a little bit, which we are doing.”

According to Reserve Bank Deputy Governor Subir Gokarn, “In recent weeks, the macroeconomic environment has become particularly turbulent. Global conditions have contributed to a significant rebalancing of portfolios as a result of rapidly changing risk perceptions and appetites.”

“This has led to increased instability and volatility in financial markets, particularly currency markets... While overall macroeconomic conditions may cause concern, we need to take an integrated and forward looking view of positive and negative indicators and future risks while thinking about appropriate policy responses,” he said.