Regulatory mechanisms and practices are of comparatively recent development in our country. Prior to the economic liberalization in the nineties, it was the exclusive prerogative of ministries and departments to form policies, issue licenses, and to regulate various activities of the stakeholders, whether it be the fixation of tariff, setting standards and codes, adjudicating disputes and what have you.
However, the new economic policy has underscored the need to establish regulatory mechanisms in order to provide “level playing fields” to entrepreneurs, and to foster competition. The most visible regulatory authority on the Indian business scenario at present is the Telecom Regulatory Authority of India (TRAI), followed by the various Electricity Regulatory Commissions (ERCs) and the Insurance Regulation & Development Authority (IRDA). The next of the genus is likely to be the Civil Aviation Regulatory Authority, for which a draft law is said to be on the anvil.
Several issues arise in the wake of the increasing number of regulatory bodies, which, as the economy develops and competition strengthens in different sectors of the economy, become essential to safeguard the interests of the industry as well as of the end-users and consumers at large. Realizing the implications of the likely proliferation of such bodies, the Planning Commission has brought out a consultation paper, which deals with several basic issues relating to the ‘Approach to Regulation’1. It is not the purpose of this article to cover the large number of relevant issues discussed in the above paper; but the intent is merely to highlight the implications of the issues discussed therein for the benefit of all those interested.
Need for Commonality in Approach
There is no dispute that there is need to have a ‘common regulatory philosophy’ for the various regulatory bodies, existing as well as the future ones, as advocated by the Planning commission. But, indeed, such an approach should not lead to a rigid system without flexibility, especially since the nuances of each sector would be specific to each of them.
Interestingly, one of the predictable solutions advocated by the Planning Commission ‘to focus on regulatory reform and governance’ is to create a separate Department of Regulatory Affairs, which, going by the past experience, would only lead to avoidable bureaucratic controls over regulators and result in avoidable red-tapism. The remedy proposed by the Planning Commission would appear to be worse than the malice!
Selection and Appointment of Regulators
A cursory glance at the manner of appointments to the regulatory bodies, and the background of the regulators in position, would leave no doubt that these bodies are presently used mainly to find re-employment for retired senior officials.
Regulators need to be independent, and must be persons of vast experience and expertise in their relevant fields. It is therefore necessary to induct competent professionals and experts in the related fields into the regulatory bodies in order to provide the required independence and professionalism to these quasi-judicial institutions. The Planning Commission’s consultative paper proposes only half-hearted measures to tackle this vital issue; it does not offer a strong and viable alternative.
Ensuring Accountability and Transparency
Another issue, which requires extensive deliberation and careful consideration is the Planning Commission’s proposal to ensure political accountability through legislatures by subjecting regulators to questioning by legislative committees. Do regulators need to be regulated by outsiders? Are legislative committees (and the bureaucracy), endowed with supervisory powers over the regulators, the right forum to ensure regulatory accountability and good practices? These are very important issues with enormous implications, and would need a national consensus, to be arrived at after elaborate discussions and considerable thought, by involving all stakeholders concerned.
The regulator’s functions, as is well known, include the promotion and facilitation of competition within the sector, and ensuring qualitative improvements by establishing standards and codes etc. to benefit different sections of consumers, and the economy as a whole.
Regulators must also develop a ‘level-playing field’ to ensure fair and equal opportunities to all those involved in the provision of goods and services relating to the sector. In order to achieve this, regulators have to be pro-active in their approach, instead of being merely passive or neutral functionaries. Avoidable scrutiny and oversight of the functions and activities of regulators by external agencies, especially legislative committees and the like, are likely to inhibit the propensity of regulators to undertake their onerous tasks.
However, the need for a ‘common regulatory philosophy’ and approach in the conduct of regulatory affairs cannot be overlooked. What is required, therefore, is a convincing, efficient, and transparent self-regulatory mechanism, - perhaps, similar to the practice followed by the judiciary, rather than imposing external controls and legislative oversight. In other words, the focus must be to encourage regulators to regulate themselves and to inculcate transparency and objectivity in their dealings and practices, rather than attempting to ‘regulate regulators’ from outside, as envisaged by the Planning Commission.
Indeed, the basic framework of the regulatory mechanism must be well defined, and above reproach. Once the fundamentals are specified, and the process is clearly established by appropriate legal framework and guidelines, the responsibility for ‘regulating the regulators’ must be left to themselves.
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