Why We Need New Institutions

Economic Times, December 01, 2011

By Pradeep S Mehta

The law of evolution applies to regulatory practice and structures too

We have a genuine dislike of creating new institutions for various reasons. But as part of the creative destruction process, should we not address ourselves to shutting down useless organisations and creating new ones or strengthening existing ones where there is a critical need and a governance gap?

This is not the first time that these questions have been raised, but if we want to grow, create jobs and posit India as a global power in the new century, we do need to address the issues squarely, and now.

In terms of shutting down low-utility organisations, ministries dealing with sports, civil aviation, etc, are good candidates and their tasks can be handled easily by existing ministries or organisations. Often, new organisations are created to satisfy some people, who get rewarded for their sycophantic behaviour.

There are several examples of this. For illustrative purposes, let me just mention one: the National Manufacturing Competitiveness Council. This has not been able to produce a single good actionable report that could have lead to better outcomes.

Proposals to create new independent regulators for unimaginable tasks are often voiced. Many rightly suspect that the ideas are floated to create new sinecures for the steel frame. For example, ideas to create coal or a fertiliser regulator do not make sense at all. Even though they have not been created does not mean the idea is dead.

Sometimes, even good ideas get shot down due to this peculiar Indian phenomenon. For example, the Bill on creating a new road safety body was sent back to the government by Parliament because it only addressed national highways, though accidents take place on all roads. Saifuddin Soz, a member of the parliamentary standing committee, scornfully noted that the proposed board will end up creating jobs for bureaucrats, who never retire. On a more important note, we do not even have a road safety policy and the cost of that runs into several thousand crores, estimated to be 3% of our GDP.

Save and except a few, where there is constitutional protection such as the Election Commission or the CAG, most of these regulatory bodies have hardly been able to make an impact: because they continue to be governed through ‘policy directives’ that are infested with ifs and buts. The classic case is that of most electricity regulatory commissions in our states, beholden to their political masters, cannot even fix proper tariffs or promote competition through open access.

There is now a welcome move by the government to reform the competition policy regime, because the existing regime is inadequate. For example, policy-induced distortions leading to anti-competitive outcomes need to be curbed and, therefore, a draft National Competition Policy is on the anvil. But the incumbent regulator Competition Commission of India (CCI) is opposed to it on several specious grounds. That the policy is to address policy distortions and not anti-competitive practices does not seem to be understood by the powers that be.

Though empowered to blow the whistle on policy-induced distortions, the CCI is not active at all. The good news is that the reformist corporate affairs minister, Dr Veerappa Moily, is not impressed with all this and has leant his full support to the idea. He has rightly termed this as the second big wave of economic reforms after the 1991 reforms. There is a proposal to establish a National Competition Policy Council to implement the policy through persuasive means and to be headed by an econocrat, rather than another retiree.

The issue of a National Competition Policy has also been captured by the Planning Commission as an important component of reform to achieve 25% share of manufacturing in GDP by 2025. In a public consultation organised by the Plan body in mid-October, there was an all-round support to address regulatory reforms through better regulation taskforces which will be designed on the lines of similar successful initiatives elsewhere, but indigenised. When implemented, it will reduce the delays in our regulatory systems and, thus, promote good governance.

In order to appreciate the types of problems that the taskforce will have to deal with, let me give two recent examples from a state system and a central system. One important criterion in the World Bank’s Doing Business in India scorecard, construction permits is the second most contentious one, taking an average of 181 days, only beaten by one notch in enforcing contracts. In Mumbai, it can take up to one year to get all approvals to start construction, in spite of an official time limit of 60 days.

The instructions are short-circuited by raising specious queries and make the applicant run from pillar to post. An online system was also tried but it just did not work, or the powers ensured it did not. But let us not condemn the introduction of IT platforms to deal with such contrived delays.

The Directorate General of Shipping has tried it out for granting approvals for hiring foreign charters, etc, and has succeeded due to strong leadership. Like all our regulatory systems, the maritime regulator is also known for overregulation, micro-control and corrupt practices.

Another important recommendation was to establish policy coherence units in the PMO and CMOs, to curb inconsistencies in our governance maze. All these changes will only enable our citizens get better governance and, thus, add to our progress.

The author is secretary general, CUTS International. Cornelius Dube of CUTS contributed to this article

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