After autonomy, the need to fix proper accountability of regulators

Governance Now, May 01, 2014

Regulators and experts believe that we need to reconsider fixing accountability of regulatory bodies towards the government

When looking for policies that need a relook, trust former deputy governor of the Reserve Bank of India Dr KC Chakrabarty to make some noise. And he did just that before bidding farewell at the central bank as he hinted his inclination towards making RBI directly accountable to parliament.

In an interview with a national daily, when asked about independence of central bankers, Chakrabarty replied that autonomy is not a big issue. Well, that could be a slightly unsettling remark for those who have been worried that the apex bank is not “truly independent”. However, Chakrabarty’s focus was on the other side of the coin: accountability.

“Today, we (at RBI) have more autonomy and less accountability. Ideally, the central bank should be accountable to parliament. In our system, accountability to parliament is manifested through the (finance) ministry. Whether we should make a change in that is something society has to debate. Globally, in mature democracies, the accountability of the central bank to society is through parliament,” Chakrabarty told the news daily.

Direct accountability of regulatory bodies to parliament is not Chakrabarty’s original idea and was recommended by the Damodaran committee last year. In addition, a draft regulatory reform bill, approved by the government last year, which also made similar recommendations, did not come up for consultation.

In India, where most committee reports are reduced to good pieces of literature and draft bills and don’t see the light of the day for years, more and more regulators demanding not just more autonomy but also more accountability could mean that the Damodaran committee recommendations and the draft regulatory reform bill may be formalised.

Former RBI governor D Subbarao has also expressed his support for making RBI directly accountable to parliament. Prior to his retirement in September last year, he had said that while the RBI Act does not lay down any formal framework to ensure accountability, it does follow “certain good practices (which) have evolved over the years.”

His list of good practices included explaining the monetary policy rationale, post-policy announcement conferences to answer media queries, appearing before parliamentary standing committee on finance, among others, but he maintained that these weren’t good enough to ensure complete accountability.

“As much as I believe that accountability to the parliament is a good idea to secure the Reserve Bank from pressures from the political executive, the institutional mechanism we build for parliamentary accountability is equally important,” Subbarao told Governance Now in an email response.

“In particular, we should guard against the risk that the RBI is freed from meddling by the government but in the process becomes vulnerable to meddling by MPs,” he further said, adding that India could look at practices established by the US Federal Reserve and the Bank of England (where the governor goes before a committee of the Congress/parliament) which are tested models.

Extrapolating the problem of lack of proper accountability to all the regulators functioning in the country, Udai S Mehta, director, Consumer Unity and Trust Society (CUTS), said that independence (read autonomy) and accountability are not mutually-exclusive. “Along with independence, all regulators need to be accountable and appropriate mechanisms are required for this,” Mehta said.

According to Mehta, while regulatory bodies in India are required to submit their annual reports and/or audited accounts to the legislature, most of the times they are made accountable to the legislature through the line ministry.

“Legislative oversight over the regulator’s performance does not seem to be effective as annual reports submitted by regulators are hardly discussed with any seriousness. The regulator’s actions are questioned only when there is an impending crisis or a serious debate in the country. In fact, in most such cases it is the line ministry that is questioned, and not the regulator. All this enables the line ministry to interfere in the functioning of the regulatory body and results in weakness in regulatory oversight,” he said.

Pitching in for parliamentary supervision of regulators, Mehta said that such a step can limit the scope for line ministries to meddle in the affairs of the regulators: “Vested interest groups often find it easier to effectively pressurise the regulator through the line ministry rather than through the parliament.Therefore, replacing the line ministry’s control by parliamentary supervision across the board is necessary.”

Mehta suggested that all these problems can be solved if chiefs of regulatory bodies routinely attend meetings with a parliamentary standing committee and also attend parliament sessions to answer questions regarding their organisation’s functioning.
Further, Mehta also said that during the appointment of regulatory body chiefs, the recommendations of a selection committee should be submitted to the parliamentary standing committee as is done in the US and UK. “The standing committee may then forward their list of preferred candidates to the government for final selection. Such a mechanism will ensure transparency as well as accountability to parliament,” he said. These measures, Mehta said, would also bring in greater financial autonomy to regulators who otherwise have to depend on line ministries for funds.

Meanwhile, former Telecom Regulatory Authority of India chairman Nripendra Misra, who in principle agrees with the idea of fixing direct accountability of regulatory bodies to parliament, said there would always be an “unavoidable link” between regulators and line ministries. “Regular meetings with a parliamentary standing committee is a good idea if they are able to oversee the overall functioning of regulatory bodies in order to mentor them. However, it will be too cumbersome for them to look after each and every functional aspect and that the involvement of line ministries to that extent will be required,” Misra argued.

For Shinjini Kumar, executive director, tax and regulatory services, accountability works best within the framework of agreed upon goals and autonomy instead of through a reporting structure: “A common problem we face in this country is that parliamentarians believe they are only accountable to an amorphous entity called ‘people’ and therefore justify anything as long as people vote for them. So, while accountability to people sounds like the ultimate goal, it can be practically challenging. Transparency is an important way of ensuring accountability as it ensures that outcomes are discussed and course correction is done.”

Ensuring autonomy and fixing accountability of institutions cannot be treated in isolation as they are two sides of the same coin. The debate on autonomy has been going on for a while. Albeit late, it is good that we started looking at the flip side of the coin.

This news item can also be viewed at: