The Securities and Exchange Board of India (SEBI) is celebrating its silver jubilee this year. A period of 25 years may not be sufficient to assess the performance of a financial sector regulator, especially when the period under review spans a very tumultuous phase of economic history. During the decade before the start of financial sector reforms in the early 1990s, Indian stock markets had started attracting a wider clientele, such as non–resident Indians. But after the reforms, the markets really took off, both in terms of volumes and types of instruments. Yet even 25 years after SEBI was formed, Indian stock markets are overwhelmingly dominated by equities which, however, continue to form a small part of household financial savings. The government faces daunting challenges in popularising products such as those necessary for infrastructure finance. Matters are not helped by the lackadaisical approach of the government towards the regulator. Set up in 1988, the Board remained a toothless body until April 1992 when the SEBI Act was passed. The stock market scam of 1992, attributed to lax regulations, hastened the conferment of legal status on the regulator.
Right from that initial act of empowerment, the government’s support to the new regulator has always come in reaction to a crisis or the emergence of new scams. It is not surprising that at its silver jubilee function, the SEBI chairman sought jurisdiction over multilevel financial conglomerates and other deposit-gathering entities whose failure has wrought havoc in Bengal and a few other States. At an even more basic level, the government’s support to SEBI has been found wanting when it is crucially needed. This is spectacularly demonstrated by the failure of the government and all political parties to support the regulator, even after it had scored a major victory in the Supreme Court over the Sahara Pariwar. SEBI has also been handicapped in not having a strong middle management cadre, the backbone of any regulator. Despite all these hurdles, SEBI’s performance deserves appreciation: its oversight has contributed to the exponential growth of the stock market, faster settlements, and extensive use of technology, encouraging disclosures and, above all, in extending regulation for the first time over capital market intermediaries through a well designed licensing process. In the 25 years it has spent down in the trenches of the financial world, SEBI has done well to earn a measure of respect from the markets and investors. What it requires today is the government support needed to go further and take its place among the most credible and respected global financial regulators.