New Regulators: Careful What You Wish For

Context: Government is planning to create a new regulator for each sector (like steel and cement) for tackling alleged cartelisation. This is likely to undermine the objective of combating anti-competitive conduct.

Present framework in India to deal with cartelisation: Law under the Competition Act, 2002 and Competition Commission of India (CCI) to enforce the law.

Problems in creating new sectoral regulators:

• A usual Indian policy formula (that is largely unsuccessful): e.g. solving the market problem using a new regulator.
• Undermines the objective of combating anti-competitive conduct:  Dissuade new entrants by placing competitive restraints in their path.
  • The difference in objectives: While the stated protectees of these regulators are consumers, the capital market regulator focuses on investor protection.
  • Against the consumers' interest: By creating practically impossible terms of conduct for other competitors who may want to innovate for the benefit of the protectees.
• Not a substitute to well-codified competition law:
  • Possible tussle with CCI: A recent ruling of Supreme Court rulings in alleged violation of telecom regulations has undermined the CCI position.
    • The ruling favours Telecom Regulatory Authority of India (TRAI) to investigate the violations since Trai’s regulation was violated (before the CCI).
    • Competition law may end up in paper only: If the CCI is permitted to give its view only after the court’s decision, then the credibility of the competition law is undermined.
  • Possibility of re-introduction of “license and inspector raj”: Sectoral regulator may copy the financial sector regulatory model and end up as a “SEBI-like regulator”.

Conclusion: Thus, past experiences suggests that creating a new sectoral regulator for a specific industry may end up aggravating problems in the sector.