The first fortnight of 2009 has been quite tumultuous, plagued by crippling strikes and a stunning self-disclosure of corporate fraud by Satyam’s Ramalinga Raju, the full daring of which will only be revealed in the days to come. Before these events unfurled, I was intending to make a case for setting up regulators in every sector but there is refinement in that thinking post-Satyam, and post a short talk with FICCI President Rajeev Chandrasekhar, but more on that later.
There can be no serious argument for not having an independent regulator in every sector. Regulators in a sector are akin to independent directors on the board of a company who ensure that the game is played by some rules. This is of course presuming that the regulators are not of the sleeping variety. The country should have real estate regulators. There should be a regulator for the aviation sector. There should be a regulator for the health sector. It is amazing that we have regulators looking at the last rupee of the tariff plans offered by telecom firms or the tariff charged by the power producers but we don’t have a regulator for the health sector.
There is no body which looks into why one hospital charges 10 times the average market price for a basic test and insists that you get it done in-house. There is no regulator overseeing the multi-thousand crore rupee medical equipment and medical diagnostics market either. The government did try to introduce some controls on medical devices when it brought some ten-odd devices (stents, intra-ocular lenses, heart valves, etc) under the 1940 Drugs and Cosmetics Act, which means that they would only be manufactured or imported under licence. Even that is not happening.
There is no regulator for the coal sector where, by the government’s own admission, there is no “objective” policy of allocation of coal riches except for a rudimentary measure of first-come-first-served. An outsider looking into the country would be shocked to see how opaque the process of allocation of coal, a nationalized resource, is—whether it is done through the so-called linkages or allowed to be mined directly by companies in case they are using it for captive consumption.
The government has always accepted the need for regulators in all these sectors and there have been various statements indicating that. However, it has never gotten down to actually setting up the regulators due to reasons which range from lack of commitment to vested interests. It should be the first priority of the new government, which takes charge post-May, to set up free and fair regulators to oversee the critical sectors.
More importantly, these regulators should have a clear brief. They should be functioning chiefly to protect the interests of the consumer, rather than have a catch-all agenda. As per the TRAI Act for instance, the telecom regulator has 18 functions to perform and the protection of the consumer is only one of them. It is also required to facilitate competition and promote efficiency, monitor the quality of service, inspect the network equipment, render advice to the central government, settle disputes between service providers, and so on. FICCI’s Chandrasekhar made a strong case for regulators with a clear brief, with that brief being protection of the interest of the consumer. This seems to make sense since, many times, one objective is in conflict with the other.
These regulators should also have, as members, persons of knowledge and expertise who are not necessarily retired bureaucrats. What prevents us from having younger people on board who are experts in their field, as is the case in many other countries. The average age of the regulator around the world is certainly not 60.
Of course, we need to recognize that even with all the regulators in place, there will be failures of the kind that we have seen in the case of Satyam, which managed to somehow squeeze past the market regulators not only in India but also in US, where the company’s ADRs are listed. Is this a one-off case? Credit Suisse, in a report last week, said that it expected a lot of one-off losses by companies in the next two reporting quarters though it hoped that no other company has a situation similar to Satyam’s.
As we see more of these one-off adjustments, the larger question that needs to be asked is how ethical can a company be in a society which is not ethical. How many companies would actually get orders if they do not “spike the specs”? How do you repair the moral fabric of a whole nation? That is the real challenge. Exemplary punishment can be one solution. If every car driver was told that crossing the red light would lead to impounding the car for three days, that would be the end of jumping of red lights. One would of course have to ensure the certainty of punishment. It helps no one to keep churning out new legislation — like the one banning child labour or smoking in public places — which is not enforced. Such laws end up making a mockery of the system and that is what needs to end!
