Empower Regulators

By Paranjoy Guha Thakurta |

Jul 17, 2010

Over the last two decades, while the government has liberalised the working of India's economy, it has dragged its feet on empowering regulatory authorities. These bodies have been packed with retired bureaucrats who, more often than not, have been “rewarded” for their “loyalty” and not for their “independence”, a pre-requisite in a person heading an ostensibly “autonomous” regulatory organisation. The quality of regulation suffers and instead of ensuring a level playing field, economic liberalisation degenerates into crony capitalism.

To be fair, not every regulatory body has been biased or inefficient. But a few instances of nepotism have tarnished the reputation of civil servants and public sector executives. V.K. Sibal, former Director General, Hydrocarbons, had to quit his post amid a flurry of allegations that his association with Reliance Industries Limited had been less than professional. N. Rangachary, former chairman of the Insurance Regulatory Development Authority (IRDA), managed to obtain Rs 10 crore from the body to set up an Institute of Risk Management - of which he became the lifelong head!

In recent times, the Telecom Regulatory Authority of India (TRAI) has been headed by retired civil servants who had served in the Department of Telecommunications. In a letter sent to the Prime Minister on May 11, Rajeev Chandrashekhar, Rajya Sabha member, alleged that by stuffing TRAI with retired bureaucrats, the authority had become a “second bureaucracy” with people “with little or no will to establish and affirm their independence from politics”. He argued that the regulator had become a “willing participant or silent spectator” to undervaluation of telecom spectrum that was detrimental to national interests.

Other regulatory organisations have been deliberately left toothless. One is the Petroleum and Natural Gas Regulatory Board and the other is the Press Council of India, of which this writer is a member. The government is taking its own sweet time empowering the Competition Commission of India after its predecessor, the Monopolies and Restrictive Trade Practices Commission, became virtually defunct. In the early-1990s, the Ministry of Finance took an excruciatingly long time in empowering the Securities and Exchange Board of India (SEBI) after the Controller of Capital Issues was wound up.

In a Planning Commission consultation paper entitled “Approach to Regulation: Issues and Options”, it has been stated that in order to ensure the independence and autonomy of regulatory institutions, the “selection, appointment and removal of (the) chairperson or members should be insulated against any perceived interference or manipulation…” The paper added that the terms of service of senior executives in these organisations “should be sufficiently remunerative to attract qualified and experienced persons” who would “enrich the functioning” of regulatory bodies.

Such pious intentions have largely remained on paper. A study undertaken by a non-governmental organisation, Consumer Unity and Trust Society, points out that appointing retired bureaucrats and superannuated judges as heads of regulatory authorities defeats “the very purpose of setting up independent institutions” as such individuals often lack the rigour, vigour and knowledge to make these bodies work in a desirable manner. Besides adequate remuneration, security of tenure and protection against arbitrary removal are essential for the effective functioning of regulatory bodies.

Whereas all regulatory authorities are statutory bodies and creatures of legislation, they are hardly accountable to Parliament. For all intents and purposes, they act as an arm of the Executive. Even as the government mulls the creation of a super-regulator for the financial sector in the wake of the turf battle between IRDA and SEBI over regulation of unit-linked insurance plans, it is time the government addresses this glaring lacuna.