For each one, lose one

'To have sensible regulations, the agency must put itself in the regulated entities' shoes', says the author

In his Independence Day speech, the prime minister spoke of Amrit Kaal, where the goal is to build an India in which the government does not interfere unnecessarily in the lives of its citizens.

While growing up in Delhi, my attention would inevitably be drawn towards the population clock at the AIIMS crossing that actively updated India’s approximate population numbers. What if we had an equivalent for regulations? India’s employer compliance universe collectively deals with 1,536 Acts, 69,233 compliances and 6,618 filings, wrote Manish Sabharwal in June, 2020. “The regulator issued 14 circulars in June. It’s three a week,” exclaimed a friend who works at a bank. This was for just one institution. If we had an equivalent regulatory clock that captured all laws, informal orders, rules, guidelines, and circulars, issued by governments, or statutory bodies to which these powers are delegated, imagine how rapidly the count on this dashboard will change.   
 

Given their mandate, it is hard to argue that regulators should not regulate. After all, regulations together with taxation and spending are the three key elements of formal state power. There are, however, issues with the regulatory ecosystem that need urgent attending. There is also much to quibble about the regulations themselves. For one, poor drafting of regulations leaves plenty of room for interpretation and discretionary powers. Unfortunately, this usually means a call to a lawyer, who translates this into everyday language. This discussion is also needed because of sloppy drafting, or the use of terms that may not necessarily be defined or where some terms might mean different things in different places, or the new regulation might contradict earlier ones. While the larger companies can afford to get the right advice, the smaller companies struggle to do so, leading to non-compliance. This holds equally for those headquartered outside the large six or seven cities. Such non-adherence breaks the trust regulators have in the entities that they supervise, and the jugaad the entities do to either comply or escape being penalised, in the process, makes them lose respect for the authorities and the system.  

Two, these are seldom based on (big) data. Many rules are a consequence of episodes that have embarrassed the regulator, and to this extent, regulators are seen as pushing down their responsibilities to ease their job. Three, these often have unintended consequences — a consequence of a perfunctory consultation process. When these anomalies occur, rules are rarely rolled back. Four, such announcements at times tread on another agency’s jurisdiction, pulling the company in two directions. Finally, once a decision is taken, rarely is sufficient time given to ensure a smooth roll-out. 

To have sensible regulations, the agency must put itself in the regulated entities’ shoes. To do so, it must first recognise that each new regulation, circular or guideline sets off a flurry of activities by those towards whom these are directed. I focus below on just two. 

For one, these invariably result in a change in processes, though in extreme cases, they upend entire business models. Changing standard operating procedures is not always easy. Today, it means calling in the IT team to rewrite swathes of code. This poses its own challenges, inasmuch as changing or inserting a line at one end might cause some other part to stop doing what it is meant to. This might not immediately surface but show up down the line. It is a real risk.

For many, and certainly for those operating in the financial services sector, this often means re-writing documents and manuals and re-training staff. Regulations might require the bank to capture more information about its customers. If it is for new customers, it is easy to handle, but asking this of existing customers as well — retrospective documentation — is back-breaking for the organisation, to say nothing of the inconvenience it causes to the customer. 

So how do we ensure Amrit Kaal is within reach?

Each agency should have a regulations dashboard on its home page, displaying the number of laws, orders, rules, guidelines, and circulars that have been issued and list the data that needs to be filed with it, including filing periodicity. If we need to ease doing business and minimise the role of government, success should be measured not in preventing this number from going up, but in ensuring it comes down. This is a tangible measure — if not gamed by combining regulations. A practical starting point is removing one regulation for each new one introduced. Each ministry, department or agency should have a senior officer tasked with such scrubbing. 

PS: In my line of work, we opine on shareholder resolutions. We would have looked at well over 700 resolutions each year for the last 10 years on ratifying cost auditors’ fees. Let alone being defeated, not one of these has got even a 10 basis point vote against the resolution. The data tells us that this can be jettisoned. There are others that can be done away with, but this is a small beginning. This suggestion is in a narrow field, where the government has already stepped aside. It can be a small beginning. Bibek Debroy offers a more wide-ranging list.

The writer is with Institutional Investor Advisory Services India Limited, a proxy advisory firm. Views are personal