April 21, 2008
Abstract: In the first of a two-part commentary on the draft report of the Committee on Financial Sector Reforms (CFSR) published in 2008, two sets of standards have been laid down for evaluation. First, does the report create a comprehensive and internally consistent roadmap? Second, does the financial system envisaged in the report have the following four attributes: stability, allocative efficiency, intermediation efficiency, and, inclusion? The 35 major proposals made by the Committee broadly meet both sets of standards.
Although all proposals are technically sound, keeping in view the practicalities of implementation, there is a need to prioritise them in terms of urgency. From the perspective of prioritising, there has been an assessment of proposals that relate to (a) macroeconomic policy regime, (b) financial inclusion and (c) bank restructuring. Prominent among the ones that deserve high priority include: transition to a market-determined exchange rate regime; introduction of priority sector loan certificates; and, facilitating consolidation of banks.
Keywords: Committee on Financial Sector Reforms (CFSR); financial system; macroeconomic policy; exchange rate; priorities; monetary policy; financial inclusion; priority sector loan certificates; bank consolidation; autonomy
