Are private sector executives better than bureaucrats for regulators' job?

Former RBI Governor Bimal Jalan said it is better if the person's expertise is considered than whether he/she is a bureaucrat or a private sector executive

There are instances of those coming from the private sector becoming the regulator in India, though only a few ones and only recently.

For instance, the current chairperson of the Securities and Exchange Board of India (Sebi), Madhabi Puri Buch, is from the private sector. However, she was a whole-time member of Sebi for around five years before becoming the chairperson in March, 2022.

It took years for the securities market regulator to appoint a person from the private sector as chairperson since the Sebi Act was enacted in 1992 or a few years prior to that when the Sebi chairman used to be there, though the Act had not come into force by then.

However, nothing could have stopped the government from appointing a person from the private sector as the market watchdog.

Similarly, academicians or economists, be it I G Patel, Manmohan Singh, C Rangarajan, Bimal Jalan, Raghuram Rajan, Urjit Patel have been the governors of the Reserve Bank of India (RBI), but they have all worked with the government or the planning commission before joining the central bank. But, a CEO of a private sector company or a head of a private sector financial institution has never been an RBI governor in independent India, although the RBI Act does not prohibit them from being so. However, Patel served as the business development president in Reliance Industries Ltd in between.

In pre-independent India, Osborne Smith, a professional banker, was the first RBI governor.

If we look at other regulators, the current Drug Controller General of India (DCGI) Rajeev Singh Raghvanshi has served in companies such as Ranbaxy Laboratories and Dr Reddy's Laboratories.

So, what is so great if the government is mulling an amendment to the Trai Act, 1997 to allow corporate executives to become chairman of the Telecom Regulatory Authority of India (Trai).

Changes are being considered as part of the Telecom Bill, according to a report in Indian Express.

According to the report, the Bill would include allowing private sector executives who have held board positions or have been chief executive officers with experience of at least 30 years.

The Bill may amend section 4 of the Trai Act. The section does not prohibit private sector executives from becoming the telecom regulator but did not lay any specific criteria. Section 4 of the Act says the central government shall appoint the chairperson and other members of Trai from amongst persons who have special knowledge of, and professional experience in, telecommunication, industry, finance, accountancy, law, management or consumer affairs.

It, however, provides criteria for those in the government services. The section says such officers need to be secretaries or additional secretary in the central government or served in the equivalent post in the union government or the state governments for not less than three years.

So, the amendment will enable the provision to specify eligibility for the private sector executives so that the government can appoint them as the telecom regulator.

But do private sector executives bring something additional if they are appointed regulators in different sectors than the bureaucrats?

To a query on this, former RBI governor Bimal Jalan said it is better if the person's expertise is considered than whether he is a bureaucrat or a private sector executive.

He, however, added that the private sector is much more on the job than the government sector because of the number of sectors India Inc is involved in.

"The private sector is much wider in scope (than the government sector)," he said.

Jalan had served as the chief economic advisor to the government, banking secretary, finance secretary, member secretary of the erstwhile Planning Commission and chairman of the Economic Advisory Council to the Prime Minister prior to being appointed as Governor in November, 1997.

D Subbarao, also former RBI governor, did not elaborate much and stopped at saying, "Perhaps, she/he will bring in a more holistic perspective (if Trai regulator is drawn from outside the government)."

Subbarao was a bureaucrat holding many key positions, including finance secretary, before he took over as the RBI governor in September, 2008.

However, there could be conflict of interest if the private sector executives are appointed regulators. As cited above, the current Sebi chairperson, taken from the private sector, was first appointed whole-time director for five years before she could become the market regulator.

In fact, the report in Indian Express quoted a government official as saying that the Centre has, so far, avoided appointing a private sector executive due to "obvious concerns of conflict of interest".

This thinking may be changing now.