A regulatory body is a public organization or government agency that is set up to exercise a regulatory function. This involves imposing requirements, conditions or restrictions, setting the standard for activities, and enforcing in these areas or obtaining compliance.
Types of Regulatory Bodies
- Statutory Independent Regulatory Agencies: Regulation by government through its own Departments or Agencies directly under its control has always existed. Example: FSSAI, SEBI, TRAI.
- Self-Regulatory Authority: The functions of Self-Regulatory Bodies may include:
- Issues of professional education
- Matters connected with licensing, and ethical conduct of the practitioners. Example: News Broadcasting standards Authority.
Regulation may be broadly understood as an effort by the state to address social risk, market failure or equity concerns through rule-based direction of social and individual action. There are major justification for Regulatory Bodies:
- Prevention of market Failure: Market failure is a condition in which the market mechanism fails to allocate resources efficiently to maximize social welfare. Example RBI, SEBI.
- To Check Anti-Competitive Prices: Example- Competition Commission of India.
- To Ensure Fair access and Non-Discrimination: Some major regulations in this regard in India are:
- Support Pricing: Example: CACP determining MSP.
- Public Distribution System- Supply of food grains at a price which is lower than the market price.
- Free Distribution-Distribution of piped water and free power to agriculture, which is a regulatory decision to levy zero tariffs, stemming from policy stances. Example Central Electricity Regulatory Board
- To prevent externalities: For example, an industrial plant discharging waste into a river imposes a negative externality (costs) on users downstream. Example- Central Pollution Control Board.
Challenges before Regulatory Bodies
- Regulatory Sprawl:
- Overlapping: SEBI and IRDI claim over ULIP. There have been reports on the clash between CCI and TRAI over the point of interconnection (PoI) issue related to Reliance Jio and other operators like Bharti Airtel.
- Effectiveness: The capacity of the Motor vehicle Department failed to keep pace with growth of Vehicles.
- Independence: There is a lack of Independence in the terms of Finance and recruitment of staff.
- Lack of Accountability: Regulators are not accountable for their failure.
Unified Regulator Vs Multi Regulator
Arguments for Unified Regulator:
- As the lines of demarcation between products and institutions have blurred, different regulators could set different regulations for the same activity for different players. Unified supervision could thus help achieve competitive neutrality. (IRDA and SEBI collision on ULIPs)
- Fragmented supervision may raise concerns about the ability of the financial sector supervisors to form an overall risk assessment of the institution.
- Whereas the effectiveness of a system of separate agencies can be impeded by turf war or a desire to ‘pass the buck’, these problems can be more easily limited and controlled in a unified organization. (Example NSEL crisis).
- Unified supervision could generate economies of scale.
- Under a system of multiple regulatory agencies, it may be more difficult to hold regulators to account for their performance against their statutory objectives.
Case Study: The Energy Sector was regulated by 5 Different Ministries. The Kelkar Committee highlighted the challenge of Coordination and Optimal utilisation of Resources. The Government has created a Single minister for Power and Ministry of Renewable Energy.
Benefits of single Regulator:
- To meet the Goals of Draft National energy policy.
- Data management and collection relating to consumption.
- Non-Payment of dues by DISCOMS might also be resolved.
Recommendations to bring Reforms in Regulatory Bodies:
- Regulation only when necessary: It is necessary to have a detailed scrutiny of all laws and regulations followed by repeal of unnecessary regulations, updating of outdated ones and simplification of the procedures so that compliance becomes easy.
- Regulatory procedures to be simple, transparent and citizen friendly: These include simplifying transactions, using IT, promoting transparency, reducing discretion, effective supervision etc.
- Self -regulation is the best form of regulation: In the field of taxation, there has been a shift from departmental assessment to greater reliance on self-assessment. This principle of voluntary compliance can be extended to other fields like building byelaws, public health regulations etc.
- The tenure of the Chairman and Board Members could also be made uniform, preferably three years or 65 years of age, whichever is earlier.
- The appointment of the Chairman and Board Members should be done by a Selection Committee. The composition of the Selection Committee should be defined in the respective Acts like in the Electricity Regulatory Commission Act.
- 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.
- Parliamentary oversight of Regulators: Annual reports submitted by Regulator to Parliament should include progress on pre-agreed evaluation parameter and should be discussed in Parliamentary Committee.
Regulate the regulators as said by 2nd ARC to bring efficiency in the regulatory bodies is need of hour in the complex socio-economic reality of 21st Century.