Need for watchdogs

The need for regulation — to ensure competition, a level playing field for all players and a balancing of the divergent interests of the different stakeholders (including the consumers) — has assumed urgency as the government is planning to close the huge infrastructure deficit of India by inducting massive doses of private investment.

Anomaly prevails in the current regulatory regime in India. For example, in some important areas like transport, coal, energy or broadcasting, there are no sectoral regulators. In roads and railways, the same authority (NHAI and Railways) operates as both operator and regulator. TRAI is the regulator for telecom, internet and cable TV but not for broadcasting or communication.

In some cases there is jurisdictional overlap. The most recent example is the spat between IRDA and SEBI over the case of ULIP.  The powers and functions of regulators in the power sector and TRAI are extensive while the regulator in the ports sector has the limited mandate of only tariff setting. The positions of several chairpersons and members of regulatory bodies remain unfilled for inordinately long time, hampering the operation and effectiveness of these institutions. A draft Regulatory Reform Bill has recently been prepared by the Planning Commission to bring some degree of uniformity and coherence to the ad hoc regulatory structure in India. As a part of the consultative process, a roundtable discussion on the draft bill was recently organised in Delhi by a Jaipur-based think tank with participants from Planning Commission, regulators, academia, media, legal profession and consumer bodies. 

The draft bill makes it clear that the basic functions of the regulators would be to make regulations, issue licences, enforce regulations and licence conditions through punitive measures, set performance standards for quality of service, identify non-competitive services and determine their tariffs, and adjudicate on disputes among licencees and between licencees and the government.

All the participants agreed that the regulator should be independent but accountable. A broad consensus emerged that independence requires — in addition to open selection process, fixed tenure and no interference from the ministers —  that government secretaries should not be regulators in their next avatars. Some justified the current state of affairs (where this principle is often violated) by suggesting that the required expertise was not initially available outside the government bureaucracy as the infrastructure sectors so far have been almost exclusively the domain of PSUs.  

Decision making
Now that the public-private partnerships and private sector firms are being allowed in infrastructure and more experience is being gained by others, it should be possible to avoid the ‘revolving door’ practice of government secretaries moving back and forth as regulators.

In order to ensure better quality of decision making, participants were in favour of restricting the number of bureaucrats and guaranteeing a minimum number of experts from finance, the relevant technical fields, law, academia and consumer affairs as members of the regulatory bodies. Regarding accountability, participants agreed that the regulators need to be accountable to parliament. There was a broad agreement that the number of regulatory bodies should be kept at a minimum, to minimise regulatory overlap, conflicts and duplication of efforts. As far as possible, multi-sector regulators should be appointed (no regulator per ministry) and procedures should be simplified.  
Should we have uniform rules and procedures for all regulatory bodies? Opinions differ on this question. The sceptics argue it is prudent to just lay down a few general principles and then allow different regulatory agencies to adjust the existing rules/procedures to conform to these general principles as far as practicable. Some others feel that without a uniform framework law, ministries will continue to formulate regulatory laws which will be incoherent.

One regulator emphasised that regulators are needed not just to regulate the private players but also to regulate  state-owned enterprises (like state electricity boards) which suffer from higher operational costs, overstaffing, inefficiencies, political  interference in operations/tariff setting and low concern for using government funds for people’s well being. In addition to promoting competition, regulators should also ensure that licencees are benchmarked against international standards and non-discriminatory open access to network is maintained (for instance, an electricity consumer in Mumbai should have the freedom to shift between power supplied by the Tatas and the Reliance). On the issue of a possible regulatory overlap and conflict between the sectoral regulators and the Competition Commission several participants talked in favour of  mandatory  consultations between the competition body and the sectoral regulators.

While all this talk of consolidation by limiting the number of regulators is going on, a recent newspaper report suggests that the government is thinking of having another regulatory body, in addition to FIPB, to check whether foreign capital is flowing into banned sectors like multi-brand retailing through subterfuges. This additional regulatory layer would add to delays and higher transaction costs discouraging much needed foreign investment, on top of creating regulatory overlap and conflicts.

It shows that the old mindset in government circles dies hard, notwithstanding all the wise deliberations over regulatory reforms being conducted by the Planning Commission.  
(The author is a former professor of economics at IIM, Calcutta)