Regulator dharma

Context: The article revolves around the multifaceted challenges faced by regulators in fulfilling their duties effectively. It highlights that while the tasks of regulators may not involve physically demanding actions, such as firefighting or deep-sea diving, they are nevertheless critical in regulating and nurturing various sectors like environment, energy, finance, and more.

If you are thinking its not related to UPSC syllabus, then mind you:

• GS paper II: Statutory, regulatory and various quasi-judicial bodies

So if you spend next 5 minutes reading this article you will have a clear understanding of what a regulator is? Why we need regulation and what are the challenges of regulatory framework in India and ofcourse how can we resolve these isses. 

What is regulation? 

• According to Thomas Jefferson, government is created to secure the inalienable rights of all citizens - i.e., the right to life, liberty and the pursuit of happiness. If everyone were to be allowed to pursue complete freedom for doing whatever he wants and to pursue his happiness, then it may lead to a situation where rights and freedom of other persons are affected. This necessitates the regulatory role of the government. The State enacts laws which impose restrictions on the activities of citizens, in the larger interest of society. In order to enforce these laws, the State creates a large number of organizations which are charged with the implementation of these laws. However, attaining ‘optimum regulation’ is a challenging task (Which we will understand in this article), as a balance has to be achieved between individual’s freedom and society’s interest.
• Regulation by government through its own Departments or Agencies directly under its control has always existed. The last century has seen the emergence of a special category of regulatory systems – the Independent Statutory Regulating Agencies (CERC for electricity, TRAI for telecom, SEBI for share market). These agencies differ from the conventional regulating system as they are separated from the executive wing of the government and enjoy a certain degree of autonomy. 

Introduction of Economic Reforms in India 

• Previously, like most developing countries, India was characterised by significant government involvement in their economies marked by dominance of large state-owned enterprises (SoEs) and private sector was limited to producing only selected goods. Cross-border trade was not encouraged and strict restrictions were imposed on imports. As a result economy continued to reflect low growth rates. 
• The introduction of New Economic Policy (NEP) of deregulation, privatisation and trade liberalisation in 1990s changed the pattern drastically. Market intervention policies were replaced by privatisation, trade and financial market liberalisation, deregulation and decentralisation of government structures.
• The increase in private participation in the newly liberalised economy pointed towards need for independent sector regulations.
• In the process, a new form of economic governance Independent regulatory regimes was set up with the expectation of insulating economic decision making from political control, ultimately contributing towards a consistent and rational policy environment; providing a level playing field to competitors; and reducing regulatory uncertainty amongst private investors.

Regulatory complexity 

• Plethora of laws governs many regulatory agencies in India.
• There is a huge variation in the terms of appointment, tenure and removal of various regulatory authorities 
• This is inappropriate considering these have been set up with broadly similar objectives and functions and should enjoy the same degree of autonomy.

Are Regulators Truly Independent? 

• Regulatory efficacy demands functional independence, which calls for the regulator maintaining an arm’s length relationship from interest groups. 
• Appointment and Removal of the Members of the Authority
  • Independent regulation as a mechanism of governance in India has been captured by bureaucracy, mostly from the Indian Administrative Service (IAS).
    • It is a post-retirement perquisite usually given on the basis of how they had functioned when in service.
  • There is a lack of uniformity in tenure and removal process.
    • Either power vests with Union government completely (SEBI, IRDA) or on reference of Union government, SC conducts an enquiry (CERC).
• Interface with Government
  • The independence of the regulator is also adversely affected by the confusion between policy and regulatory matters lurking in the government departments.
    • Example: Extending digital penetration VS Net Neutrality. 
  • Since Regulators have been hived off from Government departments for the purpose of carrying out government policies, a close link between the two is essential while respecting the autonomy and independence of the Regulators.
    • The regulators are dependent on concerned line ministry for budgetary allotments, endorsement of staff appointments and need for former to report to the latter, etc. There is no uniformity on funding of regulators.
  • While interface with the government on the various aspects mentioned above is critical to the effective functioning of the regulator, it is also essential to evolve healthy conventions so that the autonomous functioning of regulator is not diluted

Are Regulators Truly accountable? 

• A Regulator can retain its legitimacy and credibility only if it is accountable for how it uses the powers that have been delegated to it by the legislature. 
• Often, it has been perceived that there is trade off between independence and accountability whereas the two are mutually reinforcing. Unless there is accountability, independence will not be justified and the greater the level of autonomy, the more critical it is to have credible accountability mechanisms
• In India, regulatory bodies in general have the following features that are relevant to their accountability: 
  • They have been constituted on the basis of statute, which also lays down terms of appointment and removal of Board Members. 
  • Their decisions can be appealed against before a specified appellant authority in most cases. Naturally, they are also subject to the writ jurisdictions of High Courts and the Supreme Court. 
  • The accounts of regulator are audited by the Comptroller and Auditor General.
• Regulatory Impact Assessment
  • A cost-benefit analysis of any proposal for regulation, whether done directly by a government department or by an independent Regulator, is now the norm in most of the developed countries.

Recommendations

• Setting up of a Regulator should be preceded by a detailed review to decide whether the policy regime in the concerned sector is such that a Regulator would be better placed to deliver the policy objectives of the department concerned.
• In addition to the statutory framework which underpins the interface between the government and the regulator, each Ministry/Department should evolve a ‘Management Statement’ outlining the objectives and roles of each regulator and the guidelines governing their interaction with the government. This would guide both the government department and the Regulator. 
• There is need for greater uniformity in the terms of appointment, tenure and removal of various regulatory authorities considering these have been set up with broadly similar objectives and functions and should enjoy the same degree of autonomy. The initial process of appointment of Chairman and Board Members should be transparent, credible and fair. The tenure of the Chairmen and Board Members could also be made uniform preferably three years or 65 years of age whichever is earlier. 
• Parliamentary oversight of regulators should be ensured through the respective Departmentally Related Standing Parliamentary Committees. 
• A body of reputed outside experts should propose guidelines for periodic evaluation of the independent Regulators. Based on these guidelines, government in consultation with respective Departmentally related Standing Committee of the Parliament should fix the principles on which the Regulators should be evaluated. The annual reports of the regulators should include a report on their performance in the context of these principles. This report should be referred to the respective Parliamentary Committee for discussion. 
• Each statute creating a Regulator should include a provision for an impact assessment periodically by an external agency. 
• There is need to achieve greater uniformity in the structure of Regulators. The existing coordination mechanisms such as the Committee of Secretaries/ Cabinet Committees, assisted by Secretary (Coordination) could easily ensure that the institutional framework for all Regulators follow, by and large, a uniform pattern.

Plethora of laws governs many regulatory agencies in India. However, institutional efficacy and optimal performance is missing. Institutional efficacy and optimal performance inter alia demands competent personnel and functional independence. To be truly independent from the government, the regulatory authority must also be financially and administratively independent from the government. The executive cannot be allowed to either interfere, or arm-twist the regulator, to force the latter to toe its line. More importantly, since the onus of meeting the regulator’s objectives lies with the regulator, the government cannot be allowed to have unbridled discretion in how the regulator hires and manages personnel, and uses its finances.