Source: The post RBI seeks to simplify and improve regulations has been created, based on the article “Quality over quantity” published in “Financial Express” on 16th August 2025
UPSC Syllabus Topic: GS Paper 3- Economy – mobilisation of resources, growth, development and employment.
Context: The Reserve Bank of India has launched a Regulatory Review Cell (RRC) to simplify and rationalise its complex regulations. The article highlights the challenges of outdated rules, limited stakeholder engagement, and weak coordination, while suggesting reforms that could make the RRC an impactful step toward efficient regulation. RBI seeks to simplify and improve regulations
Challenges in the Existing Regulatory Framework
- Complexity of Rules: Overlapping, outdated, and complex regulations have built up over time. These are not failures, but natural results of systemic mismatches that grow with change.
- Honest Assessment: New leadership often sees inefficiencies more clearly. Insiders may accept processes as routine or fear reform. A brutally honest review is essential for progress.
Importance of Stakeholder Engagement
- Identifying the Right Voices: Senior leaders often downplay difficulties and overstate praise. In contrast, operational staff deal directly with compliance and face the actual burden. Their feedback is vital.
- Limited Access to RBI: The RBI is harder to approach than most regulators. While restricted contact may protect integrity, it leaves staff unaware of practical consequences of regulations.
- Misaligned Incentives: In foreign exchange, the RBI relies on chartered accountants (CAs) for certifications but avoids engaging with them. Banks, as authorised dealers, have obligations but little incentive to resolve client issues. CAs, who are motivated, are sidelined, leading to delays and inefficiency.
Need for Clarity in Institutional Approach
- Uniform Departmental Style: Departments tasked with facilitation use the same rigid style as enforcement. This creates avoidable hurdles for businesses and investors.
- Stating Objectives Clearly: Departments should define their intent, such as promoting inclusion or facilitating trade, while ensuring safety. Earlier efforts like the citizen’s charter exist but remain underused.
Mechanisms for Dialogue and Feedback
- Effective Query System: A responsive mechanism for queries and clarifications is essential. This is especially important in areas like trade, investment, and transactions.
- RRC’s Role: Such feedback can guide the RRC in identifying overlaps, easing compliance, and ensuring that regulations remain relevant and useful.
Coordination Across Institutions
- Gaps at Operational Level: Committees ensure coordination at the policy level, but operational gaps persist. Businesses and intermediaries are often left to solve inter-agency issues themselves.
- Clearing House Requirement: Practical solutions to these problems are rarely made public. A formal clearing house is needed to record and share consistent operational guidance.
Conclusion
The success of the RRC will depend on execution, stakeholder engagement, clear intent, and institutional coordination. The true achievement will not be fewer rules, but relevant, effective, and practical regulations that strengthen India’s ambitious economy.
Question for practice:
Examine the challenges and reforms needed for the success of RBI’s Regulatory Review Cell.
