Vinayak Chatterjee: The long and winding road

INFRAWALK

India's hunt for independent regulatory authorities for infrastructure appears to be going nowhere.

August 24, 2004: Soon after the UPA government was sworn in, the Prime Minister announced a slew of measures including "revamping the regulatory framework and a PM-chaired committee to monitor infrastructure projects". He talked about "a regulatory framework that is transparent, independent, autonomous, world class, independent of government and provides an impartial balance between public sector and private suppliers" .

August 25, 2004: The Planning Commission was asked by the PM to prepare a paper on 'regulatory structures' for different sectors.

August 30, 2004: The government set up a high level committee, headed by the Prime Minister to monitor the implementation of infrastructure projects. The Deputy Chairman of the Planning Commission, Montek Singh Ahluwalia, was appointed as the Member-Secretary.

August 31, 2004: In an interview, Montek Singh Ahluwalia said, "We want to do a comprehensive review of the regulatory structure for each of the major infrastructure areas where private-public partnership is to be encouraged. We will first lay down the general principles that the regulatory structure must meet, and then review each sector and indicate what are the gaps. In doing this we will consult the ministries, regulators and private players and then make up our mind".

September 1, 2004: Ahluwalia declared that a paper on infrastructure regulation would be ready by 2004 end.

December 23, 2004: CII, through its Infrastructure Council, made its first presentation to Ahluwalia and his team at the Planning Commission on "Infrastructure and Regulation: Key Issues and Recommendations". (On matching wavelengths on substantive issues with the Planning Commission, and after an extended period of deliberations with regulators and various stakeholders, a formal report titled "Recommended Framework to Improve Regulatory Effectiveness in the Indian Infrastructure Sector" was submitted on February 22, 2007.) This report, supported by the Public-Private Infrastructure Advisory Facility, called for an umbrella legislation that could possibly be called the 'Infrastructure Regulatory Framework Act'. This Act was expected to make a clear break with the past and foster a fresh approach in the areas of regulatory autonomy, empowerment and accountability. It hoped to secure transparency in regulatory functioning and jurisdictional clarity between a sector regulator and the Competition Commission of India. It also proposed setting up a National Infrastructure Appellate Tribunal for adjudication of disputes and building regulatory capacity by having a National Institute for Regulators under the auspices of the Planning Commission.

2005-06: In this period, serious attention was given to this area by three institutions "" NCAER, CUTS Centre for Competition, Investment and Economic Regulation and CII. A series of seminars, workshops and position papers attempted to focus attention and provide direction.

August 18, 2006: The Planning Commission came out with its own consultation paper titled "Approach to Regulation: Issues and Options". This well argued paper suggested "...an Act of Parliament laying down the overarching principles of regulation cutting across different sectors".

Some of the salient points made in the Planning Commission consultation paper are:

A survey of the provisions of the existing statutory and institutional framework suggests the absence of a common regulatory philosophy guiding the evolution of regulatory institutions in infrastructure sectors. Political constraints and ministerial preferences over time seem to have dominated the reform agenda in different infrastructure sectors.

The regulator needs to be directly responsible to the legislature.

Regulation should aim at removing barriers to competition and eliminating the abuse of market power. In segments of infrastructure services that are amenable to competition, regulation should be light-handed and tariff-setting could be left to competitive markets whereas segments that have elements of monopoly should be subjected to close regulation.

To focus on regulatory reform and governance, a separate Department of Regulatory Affairs may be created within the ministry of personnel and administrative reforms.

Selection should not only be fair, it should also appear to be fair. The chairpersons and members of regulatory commissions could be appointed by the President on the recommendation of the Prime Minister who should choose from of a panel of two or three names empanelled by a committee comprising of the Chairperson of UPSC, Cabinet Secretary and Chairperson of the respective regulatory commission. In the selection and appointments relating to appellate tribunals, the same process could be followed except in case of judicial members who should be appointed on the recommendation of the Chief Justice.

Drawing from international experience from several countries, India should consider opting for multi-sectoral regulators for (a) communications; (b) electricity, fuels and gas; and (c) transport. This would eliminate the proliferation of regulatory commissions, help build capacity and expertise, promote consistency of approach and save on costs.

In the case of states, a single regulatory commission for all infrastructure sectors may be more productive and cost-effective as compared to sectoral regulators for each sector.

Separate appellate tribunals could be constituted for the three major segments, that is, energy, communication and transport. The other approach could be to constitute a single appellate tribunal for all regulatory commissions with regional benches.

October 7, 2006: Prime Minister Manmohan Singh, speaking at the Conference on 'Building Infrastructure: Challenges and Opportunities' at Vigyan Bhawan, New Delhi, said, "...All this requires the establishment of independent regulatory bodies with an appeal mechanism. These are difficult but relevant issues and we must flex our minds to arrive at arrangements that suit our requirements."

December 17, 2006: Speaking at the Golden Jubilee Celebrations of the National Council of Applied Economic Research, the Prime Minister said, "...We have made a clear national commitment to encourage public-private sector partnership in our infrastructure sector. Such investments will only materialise if there is confidence in the independence and stability of the regulatory regime; we have made a start in this direction, but establishing a credible regulatory culture will take more effort and time."

February 3, 2007: From a lead in The Economist, "India Overheats": "Private investors are hesitant about putting money in infrastructure because the regulators are not independent enough of populist politicians to guarantee a decent return."

It may be apt to reflect on a song from the sixties:

But still they lead me back
To the long winding road
You left me standing here
A long-long time ago
Don't leave me waiting here
Lead me to your door
(Beatles' lyrics)

Vinayak Chatterjee is the Chairman of Feedback Ventures. He is also the Chairman of CII's National Council on Infrastructure. The views expressed are personal