The Economic Times, January 29, 2023
By Vijay L Kelkar & Pradeep S Mehta
Synopsis
The Indian regulatory system must reform itself, in a holistic manner. India should also take part in the next exercise of OECD’s mapping of regulators on the governance indicators, and must conduct such evaluation exercises even at a domestic level.
As the annual budget announcement draws near, it is a good time to look towards India’s future. For India to showcase its standard of economic governance, regulatory authorities will need to become world class. To achieve that, regulatory bodies should be truly independent and work efficiently.
As of now, these sectoral regulators are not fully independent for various reasons. One of these is that the appointees on the board are biased individuals who cannot ensure independence, impartiality and accountability in the functioning of the body due to highly prejudiced procedure of selection and criterion. On these pages in the past, we have, therefore, advocated for a sector-specific selection procedure, highlighted issues that hamper the lack of accountability, the need of a whole-of-government approach, and to curb undue influence of the executive machinery.
India’s multitude of sectoral regulators are crucial components of governance of fundamental sectors. The regulatory agencies are at the forefront of ensuring that citizens and industry enjoy the fruits of a well- functioning economic democracy. To determine whether the selection process of regulators ensures independence, we can look at the independence pillar of OECD’s Indicators on the Governance of Sector Regulators (GSR; bit.ly/3FQbEbS). The last exercise of mapping regulatory authorities across the world on GSR indicators was undertaken in 2018, which covered 47 countries. India was not a part of this. The list included 163 distinct economic regulators across five networks – energy, e-communications, rail and air transport, and water.
The independence component under GSR indicators maps the degree to which a regulator operates independently and without undue influence from both political power and regulated sectors. It seeks to measure aspects of de facto independence through a variety of dimensions. While Indian regulators have not been mapped, the questions posed to determine the extent of independence over the appointment process can be applied.
These questions include, but are not limited to:
Which body has the legal authority to make the final appointment of the agency head/board members?
Are there restrictions regarding the employment history of the agency head/board members?
May the agency head/board members hold other offices/appointments in the government/the regulated industry?
Can the agency head/board members accept jobs in the government related to the sector that is regulated by the regulator and/or the sector that is regulated by the regulator after their term of office?
How long is the term of office of the agency head/board members?
The practice in India is to appoint retired bureaucrats as heads of regulatory bodies. The appointments are done by the central or the state government as per the relevant statute governing the regulatory authority. Retired bureaucrats bring a sense of comfort and familiarity to the system. Many of these appointees are suitable for the post, but most are inept. Hence, there is a need to have a mix of appointees on the boards of the regulatory bodies.
Some dynamic young professionals with expertise in the sector should be given a fair consideration to be appointed on the boards, to ensure efficiency and fresh perspectives. A second term of extension to the members could be provided as further incentive to join on the board of regulatory bodies.
A sector-specific selection process, overseen by a constitutional authority such as the Union Public Service Commission (UPSC), formed by eminent personalities from academia, social sector, industry and government, should be established and the regulatory law be suitably amended. This body can undertake scrutiny of applicants and conduct extensive interviews. The selection decision of the authority so established should undergo scrutiny of the subject parliamentary standing committee to ensure further accountability and transparency. For further guidance, OECD’s best practice principles on the Governance of Regulators () should be followed.
Among numerous examples of such healthy practices, one good example is Mexico’s Federal Institute of Telecommunications. The appointments as commissioners are subject to the compliance requirements of an evaluation committee composed of the directors of Bank of Mexico (Banxico), the National Institute for Educational Evaluation (INEE), and the National Institute of Statistics and Geography (INEGI). The committee evaluates the applicants on the subject knowledge through a test and interview. The selected candidates are then proposed to the senate for ratification.
The Indian regulatory system must reform itself, in a holistic manner. India should also take part in the next exercise of OECD’s mapping of regulators on the governance indicators, and must conduct such evaluation exercises even at a domestic level.
(Kelkar is former chairman, 13th Finance Commission, and Mehta is the secretary general, CUTS (Consumer Unity and Trust Society) International. Inputs by Shiksha Srivastava)
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