Set regulators free

Economic Times, December 26, 2011

By Pradeep S Mehta

The demand to house the Central Bureau of Investigation (CBI) under the proposed constitutional authority of the Lokpal is indeed sensible in more ways than one. This will ensure its independence. Though the CBI is a credible institution, it often comes under the influence of the government to move, or not, on sensitive cases involving politicians.

On the other hand, it is fortunate that the Lokpal will be a constitutional authority, otherwise the body would have also met the fate of several of our institutions that get suffocated under executive fiat. Hopefully, the debate should spur a larger discourse on ensuring independence of our regulatory institutions for better governance and growth.

While the institution of a strong Lokpal, and Lokayuktas in states, will have a dampening effect on the pandemic of corruption, it would take some time to sink in, and much would depend upon the quality of personnel manning it. Without going deeper into this aspect vis-a-vis institutions governing aspects of probity or the lack of it, let us take a closer look at our economic regulatory institutions.

These bodies too are victims of political patronage and interference. Nearly all our regulators are manned by mediocre manipulators. Reformist minister Dr Veerappa Moily has suggested that to curb corruption, such people should be debarred from being appointed as regulators. It is their calibre and fatigue that results in suboptimal outcomes, thus afflicting the economy.

One critical element of institutions is their independence and autonomy. Three current policy prescriptions prepared by government agencies deal with this aspect. However, it is quite likely that their recommendations will remain on paper, unless there is political will.

First: The Draft National Competition Policy, 2011, that inter alia seeks separation of the policymaking, regulatory and operating functions. For instance, the department of telecom (DoT) decides telecom policy, it oversees the Telecom Regulatory Authority of India, and also owns BSNL and MTNL. How can one expect the DoT to be impartial when disputes arise between the regulator and an operator.

The Trai Act, 1997, would not have been replaced by the Trai (Amendment) Act, 2000, if a spat between BSNL and Trai had not taken place. The DoT was unhappy that Trai was not heeding its advice, but nothing could be done as the law did not allow for sacking of the regulator easily. So, that government did a wicked thing: it scrapped the law and adopted a new one that now provided for an easier removal procedure.

Both the Trai Acts had empowered the government to issue policy directives, an anachronistic device, but its use was not made when the Trai was implementing the law as defined under the 1997 Act.

Second: Perhaps learning from the Trai and other similar experiences, the Planning Commission in its Approach Paper on Infrastructure, 2008, and Regulatory Reform Bill, 2009, said that the line ministry can issue policy directives to the regulator in public interest. This has been seen as the litmus test of independence and autonomy.

It says that such directions can only be of a general nature and not on any regulatory decision, and be issued only after consultation with the regulator, and be made public. Furthermore, as a check on bureaucratic arbitrariness, the directive should have been approved by the minister and the Prime Minister. For example, once a state government used this provision asking the electricity regulator to appoint a particular person whom the chairman did not agree with.

Third: The Committee on Allocation of Natural Resources, 2011, in its recommendations on policy directives in the section of regulatory institutions, has echoed the Planning Commission’s prescription that all such directives be of a general nature and be approved by the concerned minister and accompanied by suitable justification and financial resources to implement them.

This recommendation falls short of the Planning Commission’s recommendation that the Prime Minister’s approval be also sought, as that would bemore effective than just getting the line minister’s approval. In most cases, babus would issue policy directives only after consulting their minister, which is not so difficult.

An interesting point has also been unravelled by this committee that can help insulate regulators from arbitrariness: creating an arm’s-length distance between the regulator and the line ministry.

Not many of us know that the Commission on Railway Safety functions under the ministry of civil aviation, and not the Railways. Its genesis lies in the Government of India Act, 1935, that provided for an inspector of railways to look into the safety of passengers and cargo to be an independent body working under the department of posts and air.

Later, the inspectorate was turned into the Commission on Railway Safety and housed in the ministry of civil aviation. In the Railways Act, 1989, the Commission’s duties were spelt out as including assessing railway lines and rolling stock ex post to ensure that they are worthy and also enquire into accidents and report to the government.

One does not hear much about their inspection work on assessment of railway lines or rolling stock, but one does hear about their accident enquiries. Alas, not much debate takes place about their accident probes, because they are not made public. If only they were carrying out routine inspections of new lines and so on, perhaps there would be less accidents. While the personnel of the Commission are drawn from railway services, they are insulated from any reprisals or ill-will as they do not revert to Railways.

Independence of institutions matter much to encourage probity and, therefore, must be ensured if the galloping corruption has to be reigned in

The author is secretary general, CUTS International.

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