Reforming regulators

Law to reshape regulatory landscape needs expansion

With economic liberalisation, India has seen the growth of regulators - bodies to set tariffs and to lay down the rules of the game for natural monopolies, utilities and those economic activities that require impartial umpiring. The idea was that these regulators would allow administrative ministries to concentrate on policymaking instead of management. The discretionary role of the government was to be reduced, if not eliminated, and independent bodies with adequate powers would decide on things in a transparent and rule-based manner. Today's regulatory landscape has belied these hopes. Ministries continue to hold on to their discretionary powers. The only change is that a new, highly paid layer of bureaucracy has been crated, making it possible for well-connected senior government servants to enjoy post-retirement sinecures.

To set this right, the Planning Commission, itself a mostly advisory body of the government, has formulated a Bill to reform regulators. There are some basic things that this Bill needs to accomplish: to increase regulators' independence and to ensure they have teeth. The process of selection, thus, should not be lackadaisical. Appointing a senior bureaucrat to the regulatory body from a ministry overseeing the same sector, for instance, should no longer be permitted. The Bill does indeed close off this option. But it should go further. Search for regulatory appointments should be more broad-based. Credible independent expert opinion should be consulted. This would ensure that the search is no longer restricted to friendly bureaucrats.

Having selected good regulators, they should be given more than just advisory powers. The Bill suggests that regulators be given tariff-setting powers. This is an important step. However, to ensure clarity, regulatory confusion should be avoided. Energy pricing, for example, requires controlling complex cross-subsidies across one or more ministries. Thus, a single regulator for energy, rather than a plethora of them for each form of energy, is essential. That principle will also serve to make regulators more independent of any one ministry.

It is also vital to have a system of overseeing regulators so that they remain accountable. Of course, they cannot be accountable to the executive; that would defeat the purpose of independence. If they are not to fall accountable to the judiciary by default, Parliament must step in. Sadly, of late, even reports from the Comptroller and Auditor General have not necessarily been scrutinised with as much care by the public accounts committee of Parliament as their importance warrants. Clearly, some changes need to be made to the procedures of parliamentary oversight as part of the reform of regulatory procedure. Perhaps open testimony by regulators to Parliament, as happens worldwide, is necessary in India. It will allow greater transparency. It will also induce civil society oversight and questioning of regulatory decisions, which is exactly as it should be. In the end, the reform Bill being proposed is both important and a good start. But it needs to do much more to ensure regulators in India fulfil expectations.