The Economic Times, March 08, 2022
By Vijay L Kelkar, Pradeep S Mehta
India will soon be taking over the presidency of the G20 in 2023. This means it has to show, among other things, its best in economic governance systems, which are comparable to advanced countries’ systems. So, as GoI is gearing up to select a new head of the Insurance Regulatory and Development Authority (Irda), it may be useful to look at an International Monetary Fund (IMF) working paper highlighting how the independence of regulatory agencies matters for good governance and financial sector stability, for the same reasons as the independence of central bank matters for monetary stability.
Together, these independent agencies have the potential to reinforce each other in achieving the overall objective of financial stability and growth. GoI needs to demonstrate credible commitment to regulation, which is dynamic in nature due to a fast-changing environment. India’s regulators need to be independent and it needs to revisit its selection process for that purpose.
In India, the tendency seems to be to appoint retired civil servants as regulators showing their preference to their accommodative possibilities compared to the needed high level of competency. The current level of compensation is not a hindrance to attract professionals, as the legal profession shows that talented lawyers are willing to join the judiciary, at a loss of income, to serve the higher purpose of public service and better governance.
Central bank governors in G20 countries, too, are fairly independent and appointed from a pool of experts. Britain’s central bank once appointed a Canadian governor, Mark Carney, as it believed that it can govern better by getting talent from anywhere in the anglophone world. In the same vein, Britain appointed Parthasarathi Shome as the head of its tax administration system.
The mechanisms followed in other countries should be understood to be used as possible models for an efficient and effective procedure of selection of regulators in India. In Britain, select committees of both Houses of Parliament conduct pre-appointment hearings. This type of parliamentary scrutiny enables the select committees to take evidence from candidates for key public appointments before they are appointed. Hearings are in public, and a report is published setting out the committee’s views on the candidate’s suitability for the post.
In the US, these senate appointments are believed to be the only mechanisms for democratic governance to organise, respond to, and participate in the technical affairs of financial regulation. After a candidate is nominated, the senate engages in providing its advice and consent on the appointment. There is high quality of engagement across the partisan divide in debating finer points on the candidature, the position requirements and the overall consequences of the country’s management of the public-private partnerships and the regulators’ potential role in it.
In Spain, the government makes a recommendation to Parliament. After scrutiny, the latter decides upon the appointment of the regulator. The process began as a pilot initiative even at the provincial level. Renewal of term is allowed for only once, and for that too, reasons have to be furnished.
There is a multifaceted appointment process in New Zealand, where advice, recommendation and consent is granted by another body. This is to undermine influence of any single political party in the selection process. This has the potential to muster greater assistance to the central bank, shield it, to an extent, from changes in the executive or legislature and help anchor the central bank in the community. The New Zealand Reserve Bank’s board, for instance, proposes the governor, who is then appointed by the finance minister.
For India, a sector-specific selection procedure must be adopted, against which applications should be accepted. Thereafter, a permanent selection body like the Union Public Service Commission (UPSC) or the Banks Board Bureau must be established with eminent personalities, and not just civil servants, to conduct efficient interviews and scrutiny in the pre-appointment stage. Private sector employees and young candidates must be encouraged to take up such positions. This would also need amendments in laws. After this process, the selection body should refer the candidate to the parliamentary standing committee on the subject under which the appointment has to be made. Ensuring the effectiveness of parliamentary scrutiny will hold regulators to account.
Vijay L Kelkar, Former chairman, Finance Commission & Pradeep S Mehta
The writer is secretary general, CUTS (Consumer Unity and Trust Society) International, and former member, think-tank on national policy.
This news item can also be viewed at: