Recently, there was a difference of opinion between two regulators: Securities and Exchange Board of India and Insurance Regulatory and Development Authority. The dispute arose out of Sebi’s ban on mutual funds giving commissions to salesmen and deducting them from the money the funds received from investors. As a result of this practice, investors in mutual funds saw an immediate deduction of 1-1½ per cent in their investment before they earned any return. In Sebi’s view, this was unjust to investors; if mutual funds wanted to reward their sales agents, they should have done so out of their own income, not out of their investors’ capital. However, insurance companies, whose investment schemes were only nominally different from those of mutual funds, refused to obey the ban, and so got an unfair advantage over mutual funds. Their grounds were that they had their own regulator, namely Irda, and did not have to obey Sebi.

The dispute went to the finance ministry. It appointed a new regulator called Financial Stability and Development Council, an ideal one from the bureaucrats’ point of view. It will do nothing beyond settling boundary disputes between products of different financial sectors; but it will give considerable employment to retired and rejected bureaucrats. The ministry did not refer the Sebi-Irda dispute to this new regulator, but resolved it itself; it allowed insurance companies to sell unit-linked insurance policies, which are really units, just like those of the mutual funds regulated by Sebi, with a trivial element of insurance added. In other words, it simply ignored Sebi’s reasons for banning agents’ commissions.

Those who have watched the untidy resolution of this quarrel between two regulators would be reminded of another one. Employers beyond a certain size are required to contribute money to a provident fund for their employees as well as to deduct a similar amount from their wages, and to hand it over to an employees’ provident fund; this provident fund invests only in cash and in fixed-interest instruments of the government and its offshoots. The finance ministry set up a so-called new voluntary pension scheme in 2004 for those not covered by the government’s other schemes; 15 per cent of the funds collected under this scheme is invested in equity, which gives much higher returns if measured over a long enough period. The finance ministry has repeatedly tried to persuade the labour ministry to permit similar investment in equity out of the employees’ provident fund, but has failed every time; the labour ministry thinks that it is the guardian of employees’ funds, which should not be subjected to the capital risks of equity. The purpose of pointing to these two festering inter-ministerial disputes is not to make a judgment about who is right and who is wrong, but to point out how completely the system of cabinet government has failed to address inter-ministerial disputes.