By and for the RBI
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The RBI and the government jointly set up a committee to self-assess India's financial system, rather than let external experts do it under the Financial Sector Assessment Programme. Its recommendations were announced by RBI Deputy Governor Rakesh Mohan, and they invite a simple question: why did the government and the RBI choose "self-assessment"? Instead of emphasising independent international assessment, as the world would like to see done for the US today, this step will strengthen arguments that countries do not need to subject themselves to the critical eyes of independent experts — government and central bank officials in each country can tell the world what a resilient and stable financial system they have. How will India defend its position of asking for a greater role for international bodies like the IMF and for international supervision and assessment after refusing to participate in the FSAP when it came to its own turn?
India's decision on self-assessment goes against the spirit of the FSAP. The Financial Sector Assessment Programme is a joint IMF and World Bank exercise and aims to increase the effectiveness of efforts to promote the soundness of financial systems in member countries. Under this programme, external experts study the financial system of a country and write a "financial system stability assessment". The FSAP process has been running for roughly a decade now. The FSSAs play an important role of providing an independent assessment of a country. In the present financial crisis this role is being emphasised by many countries, including India, at the G-20 forum — especially after the regulatory failures in the US. What is pertinent is that the report by the Rakesh Mohan Committee on Financial Sector Assessment is the result of an exercise the Indian government chose to undertake on its own, instead of agreeing to an assessment under the standard FSAP, as conducted by the IMF and World Bank for member countries. The self-assessment committee included top officials from the RBI and the finance ministry.