With the Telecom Regulatory Authority of India (or Trai) having become yet another rogue regulator, the time has surely come to take a good, hard look at how the experiment with “independent” market regulators has worked. These were supposed to provide a superior alternative to government decision-making, free of political considerations and armed with sufficient expertise to make informed judgements on complex issues. The reality has turned out to be very different. Take Trai itself. Its first chairman was considered too independent, and hence the law was changed to make Trai more compliant. Ever since, telecom ministers have been able to do pretty much what they wanted, whether it was Pramod Mahajan or Arun Shourie, Dayanidhi Maran or Andimuthu Raja. Inevitably, telecom has seen repeated and dramatic changes in its operating environment in the last 15 years, creating not just scandal but a heightened level of risk. Where it was not ministerial capture, it has been capture by a business house — with the usual cast of suspects.
The Securities and Exchange Board of India (Sebi) has been no better. There was a prolonged phase when the majority of its notable decisions would be overturned in appeal, without apparently causing the incumbent Sebi chairman much discomfort. Sebi also has a long record of allowing companies and businessmen accused of grave transgressions to get away with little more than a financial tap on the wrist. After C B Bhave was appointed chairman in 2008, even though he faced indictment in his previous job, Sebi overturned previous decisions against Bhave, although the chairman kept away from the proceedings. The Bhave-Sebi’s treatment of the application for setting up a new stock exchange has been excoriated in court proceedings, the charge being that he was helping an established player. On another tack, the Bhave-Sebi’s abrupt decision to force a confrontation with another regulator on a turf issue gave the government an opening to step into territory that it should have stayed away from.
The record of other regulators is not much better. The power sector regulators at the Centre and in the states have been unable or unwilling to take the pricing decisions required, so the sector is bankrupt — hardly an advertisement for the “independent regulator” model. The insurance regulator turned a blind eye to widespread malpractice by the new private players in the industry, then saw the light one day and clamped down and took away the bulk of the companies’ business overnight. The airport regulator has introduced a global innovation: charging arriving passengers for the use of an airport. And a former director-general of hydrocarbons was under investigation after he took some strange decisions that helped an oil-and-gas producer.
If you put aside the theory on independent regulators, and look at the way the model has worked in practice, it has helped just one powerful trade union — the Indian Administrative Service, which has progressively engineered a monopoly on virtually every regulator’s job, including the governorship of the Reserve Bank of India (which, once the ICS era was over, had been the rightful preserve of economists for the large part of three decades). The electricity regulator’s job was once kept vacant for several months so that a particular IAS officer could retire and step into what he must have seen as a sinecure. Being such a regulator is the babu’s dream — absolute power with no retribution for wrong decisions, no ministerial oversight, no substantive answerability to Parliament, and guaranteed tenure of three to five years, and all of it post-retirement. No one wants to go back to the old licence-permit raj. But if market-oriented policy options are to work in key sectors, we need a new paradigm for independent egulators.
