The core issues for regulators in India are inadequate autonomy and lack of parliamentary accountability

Economic Times, April 25, 2022

By Vijay L Kelkar, Pradeep S Mehta

The telecom regulator of Brazil, National Agency of Telecommunications (Anatel), is not hierarchically subordinate to a government agency. The members of its council of directors, the managing body responsible for decision-making, are chosen by the president and approved by the federal senate.

Ministries pertaining to sectors regularly interfere with independent regulators thereby challenging their very independence. These regulatory institutions lie at the heart of India’s post-reforms economic governance system and their autonomy is a key parameter for determining the quality of economic democracy. An ‘arm’s length principle’ can stop undue administrative control.

The Telecom Regulatory Authority of India (Trai) has no real penalising powers, or financial autonomy and control over recruitment. The telecom ministry’s Department of Telecom (DoT) has ubiquitous presence in all functions related to the sector. It decides the policies and regulates entry and exit conditions of the players. The appointment of Trai chairman has been repeatedly hijacked by retired civil servants who are not fully familiar with regulatory principles, law and international best practices. A strong regulator is a prerequisite to ensure digital democracy and net neutrality. The transformation of Trai must begin with accepting the inadequacy of the current model.

A good example of the ‘arm’s length’ principle is the Commission on Railway Safety (CRS), which reports to the civil aviation ministry, not the railways ministry. Moreover, CRS officers are insulated as they do not ‘go back’ to the railways. A greater role should be played by the relevant parliamentary standing committee for the oversight of regulators. The committee can decide guidelines for regulators, on which they can be evaluated.

There are plenty of international examples that can be emulated for their best practices of regulatory independence. The German counterpart of Trai is Bundesnetzagentur (BNetzA), the federal network agency. It, too, exists in the ecosystem of the telecommunications ministry, but the ministry does not have power to review its decisions. Also, BNetzA’s president and two vice presidents are appointed by the president on the recommendation of an independent advisory council, comprising legislators from the Centre and the states.

The telecom regulator of Brazil, National Agency of Telecommunications (Anatel), is not hierarchically subordinate to a government agency. The members of its council of directors, the managing body responsible for decision-making, are chosen by the president and approved by the federal senate.

As for the other facet of autonomy – financial control – the regulators lack this as well. The Consolidated Fund of India (CFI) is the account that holds all revenues, and money received by the regulator. The expenses of the regulator are also met through this account. Some of the independent regulatory authorities receive money from CFI as ‘grants-in-aid’. But the surplus funds with regulators then are to be submitted back to CFI.

Trai does not even have partial financial autonomy, as it depends on DoT’s approval for its budget. The goal of regulatory independence aligns with self-financing, and exemption from the constitutional framework. But this remains an unexplored grey area in India, though the Securities and Exchange Board of India (Sebi) did have a spat with the finance ministry over this. Ultimately, the ministry prevailed. An arm’s length can be created to some extent by following the model of funding on a ‘charge basis’, like the way it is for the judiciary.

Due to the functional and financial overreach of the sectoral ministry over the regulators, there is a trust and transparency deficit. One stark example of regulatory failure can be seen in the power sector that is boggled with distribution company arrears thanks to the lack of accountability, since state governments do not transfer the subsidies to discoms in time.

Unlike the central one, the Electricity Regulatory Commissions at the state level are not independent. Most often, the head is a former retired – and pliable – bureaucrat from the state. GoI can undertake regulatory reforms to lead by example. We can learn from the regulators of other countries that have practices promoting neutrality and transparency. Nearly all of them engage with stakeholders, and then move forward in drafting regulations. Through such systems, public participation has been institutionalised, which, in turn, has led to public accountability, something that India’s regulators lack – with the exception of all electricity regulators that have multi-stakeholder advisory bodies but often function ineffectively.

The core issues for regulators in India are inadequate autonomy and lack of parliamentary accountability. The regulators work on the margins of reform, and cannot substantially impact via policy and implementation. They need to work impartially to benefit the cause of fair competition and consumer interest. Undue control of the administrative ministry defeats this very purpose. It exposes the need for radical regulatory reform.

 

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