Regulatory capture of a different kind

Context: There is various issues associated with the regulatory framework that need to be address.

Background: India’s regulatory framework

• The need for setting up regulators for different sectors arose as the Indian economy was liberalised.
• The government decided to restrict its role to only setting the policy for each sector. It formed separate regulators and ensured that both public and private sector players followed those policies.
• Regulatory bodies supervise a wide range of sectors, including financial intermediaries like banks and insurance companies, financing of housing and small industries, capital markets, electricity distribution, telecommunication, competition policy, port tariffs, airports, pension funds, warehousing etc.
• Most of these institutions are set up under specific laws approved by Parliament and hence they function as independent bodies.

Issues associated with regulatory framework in India

• Multiplicity of Institutions: There are at least 16 institutions that supervise various sectors of economy.
• Leadership issues: 3/4th of regulatory institutions is headed by senior government officials, this could give rise to a state-regulator nexus, thereby defeating the purpose behind regulation.
• Questionable independence: Officers long service with the government may bias her judgement in adjudicating on enforcement of the policy.
  • The government can also influence its former officers in their discharge of functions as regulators.
• Lack of capacity: System in itself is not adequate to produce professionals who would be willing to become regulators.
• Limitations in taking outside talents: A professional regulator, with relevant experience of the industry, is a boon for regulation. There may be conflicts of interest.
• Capture of the regulatory bodies by the IAS and allied services: As retired government officers as regulators served the interests of both the bureaucracy and the ruling politicians.

Way Forward

• There is need to break the stranglehold of retired civil servants over the regulatory bodies as the process of monetisation of government assets has speed up.
• Build adequate capacity in the industry so that professionals from different sectors can aspire to become regulators.
• The government must send out a clear signal that leadership positions at regulatory bodies are not a preserve of retired government officials.