Let’s regulate the regulators

The Hindu Business Line, March 29, 2014

By Pradeep S Mehta

The terms of appointment vary from one sectoral regulator to another. Now, there’s a Bill that takes such issues head-on

Our regulatory architecture is a perfect mess. Line ministries design the law pertaining to the regulatory agency the way they please The Law Ministry, which needs to ensure coherence across similar laws, does not do so. Hence, the ambiguity over qualifications and period of the commission members; this varies from law to law.

Even the Prime Minister has expressed the need to adopt an even-handed approach in framing rules for regulatory institutions.

Finally, the Planning Commission is trying to prepare an enabling legislation for a uniform architecture. But it is just not moving due to turf issues, as myopic ministries would not want to give up their own powers to design the institution.

The Planning Commission had drafted the Regulatory Reform Bill in 2011 to ensure uniformity in all regulatory appointments in the infrastructure sector. The Bill was approved by the government after much back and forth movement between ministries. It has now been put up in the public domain as the Regulatory Reform Bill, 2013.

Regulatory reform

The Bill introduces major reforms in infrastructure regulation. It seeks to bring the thirteen regulators in India (except for those in the financial sector) under its umbrella, to ensure uniformity in “powers, functioning and accountability of the regulatory commissions”, while proving independence in “determination of tariff, enforcement of performance standards, promoting investment”.

The Bill provides that the Regulators shall have the power to issue licences and shall be accountable to Parliament. Further, protection of consumer interest and promotion of competition has been established as one of the pillars of the Bill. It is not going to be a regulator of regulators, as is being misinterpreted by some.

Although, the Bill has been judiciously drafted, it fails to adequately provide for some of the goals it sets to achieve. For instance, independence and accountability have been clearly enlisted as important factors, but the mechanism to achieve these is vague.

The draft legislation says that the government may also establish tariff regulatory commissions for the purpose of tariff determination.

The purpose of the Bill is to sharpen the regulatory framework in the infrastructure sector. Therefore, the creation of two commissions for tariff determination would only create an unnecessary overlap.

According to the Bill, the Centre shall, for the purpose of “search and selection” of chairperson and members of the commission and tribunals, establish a selection committee. On the whole, the mechanism for selecting regulatory commission and tribunal members seems arbitrary and opaque.

Parliament role

The intention of the enactment is to make regulators accountable to Parliament. It is hence important that the suggested powers of the regulators flow from Parliament itself.

The recommendations of a selection committee should be submitted to the Parliamentary standing committee to narrow the nominations after conducting a public hearing, as in the US and UK. After this, the standing committee may forward the list to the government for final selection. Such a mechanism will ensure transparency as well as accountability to Parliament.

The selection committee should have more than half its members from outside the bureaucracy (serving or retired). Selection committees are often packed with serving or retired bureaucrats and they end up selecting their brethren as chairs or members of the regulatory commission. In most cases, retired bureaucrats are good administrators but not adept at law and economics.

The Regulatory Reform Bill will have an overriding effect in the case of conflict with any other laws, except in the case of the Consumer Protection Act, 1986, the Atomic Energy Act, 1962 and the Competition Act, 2002. Although the jurisdiction of the Act is clearly defined, there is yet scope for confusion and overlap.

The writer is secretary general of CUTS International. Neha Tomar of CUTS contributed to the article

This article can also be viewed at: