Basic Structure Doctrine as a Limitation on Banking Sector Reforms

Abstract

Banking sector reforms have certainly played a major role in strengthening the financial system of India. They have ensured an improvement of the regulatory efficiency. They have also promoted financial stability and competition. More importantly, it helps in the economic growth of the nation. Parliament passed many laws and constitutional policies to modernise the banking sector in view of changing economic conditions. However, exercise of legislative and constituent powers  must be in conformity with the constitutional scheme provided in the Constitution of India. The Basic Structure Doctrine is an important constitutional principle which puts limits on Parliament’s power to amend the Constitution so as to damage the basic structure. It raises a question of importance as to the extent banking sector reforms can be undertaken without transgressing the fundamental constitutional principles.

The aim of this study is to ascertain whether the Parliament is competent to legislate on banking reforms impeding on the basic features of rule of law, federalism, judicial review and separation of powers. This study applies a doctrinal legal methodology which relies on the analysis of constitutional provisions, legislative acts of parliament, landmark judicial decisions, reports of a government, as well as books and journals on constitutional law and banking regulation.

It is found in study that notwithstanding the extensive legislative and constituent powers of Parliament to introduce banking sector reforms, these powers are not absolute. The Basic Structure Doctrine serves as a vital constitutional restriction that preserves the supremacy of the Constitution by preventing amendments that undermine its essential framework. The author concludes that sustainable banking reforms should embrace a certain balance between economic development and constitutional governance so that modernization of the financial sector does not take place at the cost of the essential aspects of the Constitution.