Sectoral expertise: Regulators can be found beyond the IAS

Subhash Chandra Khutia, a member of the Indian Administrative Service who was chief secretary to the Karnataka government, has been chosen by a selection panel as the next chairman of the Insurance Regulatory and Development Authority, or IRDA. Mr Khutia replaces T S Vijayan and is to serve as IRDA chairman for three years. When Mr Vijayan was chosen to head the authority in 2013, his appointment was welcomed particularly because he had previously served as head of the Life Insurance Corporation of India. While it may not be best practice to appoint the former chairperson of the largest player in a sector as chief regulator of that sector, it was nevertheless hoped that his appointment would break the tendency to staff regulatory positions exclusively with former bureaucrats. Without in any way impugning the competence of Mr Khutia, it is unfortunate that this welcome progression has now been reversed. 

If one looks at the selection process, it would appear that the scales are tilted in favour of the bureaucracy. For instance, the Financial Sector Regulatory Appointment Search Committee, which is responsible for selecting the insurance regulator from a panel of eight, is headed by the cabinet secretary, the senior-most member of the administrative service. This will be widely seen as another attempt by the premier all-India service to reserve the best positions for its own members. That is because one regulator after another proves to be from the IAS — forget about external talent, even the other services rarely get a look-in. Clearly, members of the IAS should be considered alongside other candidates, but it must be acknowledged that they are not the only sources of talent or expertise in India — far from it. Given this fact, their apparent monopoly of senior positions even when chosen by a supposedly impartial committee should raise eyebrows. 

Regulation, especially financial regulation, is a particularly difficult task that requires a light touch and extensive experience with the sector being regulated. Sectoral experts should, in general, be preferred to generalists, and thus, in any reasonable selection process, they would start with a considerable advantage. In this case, of the other eight candidates, several were sectoral experts. Dismissal of the importance of such experience underestimates the complexity of the tasks of a financial regulator. It is also important to note that, in the past, regulators have been called upon to take positions on decisions made by the relevant ministry; and, in many sectors, the government is a major player in the sector being regulated. A bureaucrat is more likely to identify with the government than with the private sector players involved, or even the consumers, who are the regulator’s ultimate constituency. 

In other words, however independent a regulatory agency may be on paper, the repeated selection of IAS members as their heads could compromise autonomy. It undermines institutions and betokens a state, government, and bureaucracy that is unwilling to let go of power. Perhaps, the first step towards freeing regulators could be to alter the composition of the search committee.