Reform and regulate

Business Line, May 26, 2010

Besides limiting the number of regulatory bodies, the draft Regulatory Reform Bill aims at minimising overlap and simplifying procedures.

By Alok Ray

A draft Regulatory Reform Bill has been prepared by the Planning Commission to bring some degree of uniformity to the regulatory structure in India. The need for such a Bill assumes urgency as the gaping infrastructure deficit is sought to be remedied by inducting private investment.

With the entry of more private players, the need to regulate them to ensure competition, a level playing field and a balancing of the divergent interests of the different stakeholders (including the consumers) cannot be overemphasised.

As a part of the consultative process, a discussion on the draft Bill was recently organised in Delhi by CUTS International, a Jaipur-based think-tank.

Sectoral regulators

The discussion brought out many important issues. However, one needs to be first aware of the current anomalous state of the regulatory regime in the country. For example, in some important areas, such as transport, coal, energy or broadcasting, there are no sectoral regulators. In roads and railways, the same authority (NHAI and the Railways, respectively) operates both as operator and regulator.

The TRAI is the regulator for telecom, Internet and cable TV but not for broadcasting or communication. In some cases, there is jurisdictional overlap. The most recent example is the spat between IRDA and SEBI over the case of ULIP.

The powers and functions of some regulators in the power sector are extensive, while the regulator in the ports sector has the limited mandate of only tariff setting. The positions of several chairpersons and members of regulatory bodies remain unfilled for inordinately long periods, hampering the operation of these institutions.

The draft Bill makes it clear that the basic functions of the regulators would be to make regulations, issue licenses, enforce regulations and licence conditions through punitive measures, set performance standards for quality of service, identify non-competitive services and determine their tariffs, and adjudicate on disputes among licencees and between licencees and the government.

Bureaucratic interference

All the participants agreed on some universal principles, such as that the regulator should be independent but accountable. A broad consensus also emerged that independence requires, among other things like an open selection process, fixed tenure and no bureaucratic interference. Some justified the current state of affairs (where this principle is often violated) by suggesting that the required expertise was not initially available outside the government bureaucracy as the infrastructure sectors so far have been almost exclusively the domain of PSUs.

Now that the public-private partnerships (PPP) and private sector firms are being allowed in infrastructure and more experience is being gained by others, it should be possible to avoid the ‘revolving door’ practice of government secretaries moving back and forth as regulators.

To ensure better decision-making, participants were in favour of guaranteeing a minimum number of experts from finance, the relevant technical field, law, academia and consumer affairs as members of the regulatory bodies.

Accountability factor

Regarding accountability, two competing models were considered. Under the US system, even the Fed Chairman is accountable to the Congress. Mr Ben Bernanke is periodically grilled by Congressional Committees in open public hearings in front of TV cameras. In the UK, the regulators are accountable to the government. In the Indian context, participants agreed that the regulators need to be accountable to the Parliament.

A broad consensus emerged to keep the number of regulatory bodies to a minimum, minimise regulatory overlap/conflicts and duplication of efforts. As far as possible, multi-sector regulators should be appointed (no regulator per ministry) and procedures should simplified.

Opinions differed on the issue of having uniform rules and procedures for all regulatory bodies. For the time being, the focus must be on limiting the number of regulators, following existing legislations and gradually moving towards uniform rules only through a process of consensus-building. Another school of thought felt that without a framework of law, ministries will continue to formulate regulatory laws that would be incoherent.

Overlap and conflicts

One regulator emphasised that regulators are needed not just to regulate the private players but also the state-owned enterprises (like State electricity boards), which will lead to higher operational costs, overstaffing, inefficiencies, political interference in operations/tariff-setting and low concern for using government funds for people’s well-being.

In addition to promoting competition, regulators should also ensure that licencees are benchmarked against international standards and non-discriminatory open access to network is maintained (for instance, an electricity consumer in Mumbai should have the freedom to shift between power supplied by the Tatas and Reliance).

To avoid a possible regulatory overlap and conflict between the sectoral regulators and the Competition Commission, consultations should be held between the them.

The author is a former Professor of Economics, IIM Calcutta.

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