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A committee, headed by former SEBI chairman M Damodaran, has lashed out at the orientation of current debates to background and personality of regulators, at a time when there is a sort of euphoria over the appointment of Raghuram Rajan as the RBI governor. It also slammed the practice of interview-based selection process of regulators by a panel.
In its report on regulatory reforms for ease of doing business, the Damodaran committee said,"unfortunately, much of the debate and discussion on regulatory organisations has tended to focus on the background and personality of the head of the regulatory organisation."
Such a sterile debate does not enable the understanding of the organisation's regulatory philosophy which significantly influences the content and scope of regulations, it said.
There has been much hype over appointment of Rajan as the RBI governor with some of the observations focusing on just his looks, an analyst said. The euphoria in markets also emanated from the perception that earlier differences between the RBI and the finance ministry over monetary stance will now end and the announcement of measures by the new governor.
The committee, constituted by the Ministry of Corporate Affairs, has recommended a transparent mechanism to appoint a watchdog.
"The appointment of persons to head regulatory organisations should be attempted in a far more transparent manner," said the panel,set up after a World Bank report ranked India 132nd in 2012 on the ease of doing business, well below the other BRICS and most of the South Asian Association for Regional Cooperation countries.
It recommended a system in which the head of the regulatory organisation and his board-level colleagues appear before an appropriate parliamentary committee once in six months to report on the developments of the previous six months and the broad plan of action for the next six months.
The government adopts a different mechanism for various watchdogs from time to time. For instance, banking regulator Raghuram Rajan's name was forwarded by Finance Minister P Chidambaram to Prime Minister Manmohan Singh, who gave his nod, those in the know said.
However, at the time of Damodaran's exit in 2008, an interview was called and C B Bhave was selected Sebi chairman.
The committee said the practice of inviting applications from interested candidates and subjecting them to a process of interviews by a panel comprising persons unfamiliar with the regulatory organisation wass the surest way to cause loss of public confidence, not only in the process but also in the organisation.
It said genuine functional autonomy of regulators would also have to be reinforced with financial autonomy, by putting in place a system whereby regulatory organisations were not dependent on government departments for financial support.
The panel, , also suggested each regulatory organisation undertake a self-evaluation once in three years. And, put out the conclusions in the public domain for informed discussion.
It recommends each government organisation or department with the responsibility for writing regulations undertake a two-stage process of consultation, wherein a revised draft is put up after the first round of stakeholder consultations. Generally, there is only one draft put up in the public domain for inviting suggestions.
When asked, a ministry of corporate affairs official said the recommendations and the time frame for implementation were under consideration.
Bessides Damodaran, the committee had ITC Group’s Y C Deveshwar, ICICI Bank non-executive chairman K V Kamath, Aditya Birla Group chairman Kumar Mangalam Birla, and Mahindra Group chairman Anand Mahindra.
