The commanding heights or the common man?

When public authorities like the BDA evade regulation, it undermines the rule of law and legitimises State inefficiency

A curious bit of news recently emanated from the corridors of the Karnataka High Court. The Bangalore Development Authority (BDA), that venerable behemoth of urban planning, has filed a case against the Karnataka Real Estate Regulatory Authority (K-RERA). The BDA’s contention is as simple as it is audacious: as a “public authority” performing sovereign functions of planning and development, it should be exempt, even for the non-sovereign activities, from the “rigorous” provisions of the RERA Act.

The issue under adjudication was the inordinate delay in developing the Nadaprabhu Kempegowda Layout (NPKL). The BDA’s argument for seeking exemption is that there are likely to be significant financial constraints for the BDA to act as per RERA norms.

To the uninitiated, this might sound like a technical turf war between two wings of the State. But to an observer of Indian public policy, it is a depressing sense of déjà vu. We have seen this movie before, and it usually ends with the consumer – the very citizen for whom the State exists – getting the short end of the stick.

The BDA’s argument rests on a fundamental misconception that has plagued Indian governance for decades: the idea that the nature of the entity (public ownership) determines the need for regulation. The underlying but unarticulated logic is that since a public body – whether statutory or a company-style undertaking – is not driven by the motive of profit maximisation but by “public welfare,” it cannot, ipso facto, mistreat its consumers/citizens. Therefore, subjecting it to an independent regulator is an unnecessary and “hindering” redundancy.

This logic is not unique to the BDA. In the financial sector, public sector banks and insurance companies and their owner, the Government of India (GOI), have historically sought, and received, “special treatment” from the relevant sectoral regulators. Whether it is laxer capital adequacy norms or softer governance standards, the entities and the owner often argue that these entities are instruments of social policy and should not be shackled by the same rules that apply to the “greedy” private sector.

We see this same song being sung in the electricity sector. Public utilities frequently argue that because they are State-owned and serve the poor, they should be exempt from the stringent performance standards or tariff disciplines imposed by State Electricity Regulatory Commissions (SERCs).

From the perspective of economic theory and public law, this argument is not just wrong; it is dangerous. Regulation by statutory regulatory authorities (SRAs) is not a punishment for being private or for-profit. It is a response to correct the consequences of market failure.

In sectors such as real estate, banking, or utilities, we observe two classic market failures: information asymmetry and concentration of economic power. That is exactly why an empowered SRA was created in these sectors. As a consumer, I am not “happy” if I am cheated by a public sector entity than by a private developer. A delay of ten years in getting a plot or a house hurts just as much, whether the perpetrator is a private builder or a State authority. In fact, it hurts more when it is the State, because the power imbalance is more lopsided. The “nature of ownership” is irrelevant to the “nature of the harm”.

History is a harsh teacher, and we have the scars to prove it. Consider the case of the Unit Trust of India (UTI). For years, UTI operated exactly like a mutual fund but was kept outside the jurisdiction of the Securities and Exchange Board of India (SEBI), precisely because it was a “statutory” body. We know that mutual funds – whoever runs them – need to be transparent and solvent. Yet, we ignored the principle. The result? The US-64 crisis in the early 2000s, where millions of small savers saw their dreams evaporate, leading to a massive taxpayer-funded bailout.

Contrast this with the pharmaceutical sector. No one, not even the most ardent socialist, argues that a cough syrup made by a PSU should be exempt from the standards of the Drugs Controller General. We understand that a sub-standard drug is a sub-standard drug, regardless of who owns the factory. Why should a sub-standard house or a sub-standard bank, or a hugely delayed plot, be any different?

Rules apply, no exceptions

The lesson for the Karnataka legislature and the Parliament is clear. It is entirely within the realm of public policy to decide whether there is a need for a PSU in a particular sector. If the State believes that only the BDA can provide affordable housing, so be it. It is the same State and the legislature that have put in place the K-RERA to protect the consumers in the real estate sector. Hence, it is not open to that public authority or the State to argue that it should be kept out of the regulatory net.

Once the State enters the “marketplace” to provide a service for a consideration (as the BDA does when it sells sites), it must play by the same rules of transparency, accountability, and time-bound delivery that apply to everyone else.

The BDA’s attempt to use its “sovereign” status as a shield against RERA is a regressive step. It seeks to undo the very “rule of law” that SRAs were designed to uphold. If we allow this exception, we are effectively but formally saying that the State has a “right to be inefficient” at the citizen’s expense.

Statutory regulators must be at “arms-length” from the executive precisely because the executive is often the owner of the largest players in the market. To internalise this is the first step toward a mature 21st-century economy. The pernicious stand of the BDA must not only be defeated in court but should be repudiated by a clear policy mandate: Regulation follows the activity, not the owner.

(The writer is a former civil servant)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.