Economic Times, November 26, 2021
By Vijay L Kelkar and Pradeep S. Mehta,
Such inability stems from the obstinate attitude of those manning the regulators. Retired bureaucrats are at the helm of most. Bred in a ‘My way or the highway’ environment, they naturally find it difficult to listen (and agree with) junior officers or members of other cadres.
It took about 10 years, interventions by the Supreme Court, power ministry and the constitution of an intergovernmental committee to resolve a dispute between the Securities and Exchange Board of India (Sebi) and the Central Electricity Regulatory Commission (CERC) over jurisdiction of electricity derivatives. It was agreed that CERC will regulate all physical delivery-based forward contracts, while all financial derivatives will be regulated by Sebi.
Quite straightforward and obvious, isn’t it? One wonders why a decade was lost to come to this solution. The answer lies not in logic but the manner in which Indian regulators lord over their fiefdoms. This is not the first, and is unlikely to be the last, battle to be fought.
Over the years, different solutions have been tried, but none seems to have lasted long. For instance, in a conflict between Sebi and the Insurance Regulatory and Development Authority (Irda) over Unit-Linked Insurance Plans (Ulips), GoI had to intervene and promulgate the Securities and Insurance Laws (Amendment and Validation) Ordinance. Several financial sector legislations were amended to clarify that Irda would regulate Ulip.
However, such issue-specific amendments do nothing to inspire confidence that turf issues will not arise in the future, or will be managed deftly. Expectedly, conflicts have arisen over regulating pension-linked insurance products, banks acting as insurance brokers, insurance companies becoming proprietary trading members for debt trading on stock exchanges, currency derivatives, gold spot trading, etc.
Consequently, jurisdiction-related conflicts are now considered a feature of our regulatory architecture. Regrettably, this bug has bitten sector-neutral regulators like the Competition Commission of India (CCI) as well (and may well be passed on to the forthcoming data regulator). Conflicts regarding regulating mergers and acquisitions, and market conduct of entities in various domains have arisen from time to time. While one may argue this to be a result of faulty legal design, our regulators are known to creatively interpret legal instruments for their ‘own benefit’.
More often than not, however, they fail to use such skills positively. Differences of opinion and diverse views is not bad per se. It is, in fact, the mark of a vibrant democracy. However, the inability to resolve such differences amicably in a time-bound manner reflects poorly on a mature democracy. Such inability stems from the obstinate attitude of those manning the regulators. Retired bureaucrats are at the helm of most. Bred in a ‘My way or the highway’ environment, they naturally find it difficult to listen (and agree with) junior officers or members of other cadres.
An attempt was made in the financial sector to avoid and address such conflicts through the constitution of the Financial Stability and Development Council (FSDC), chaired by the finance minister. The FSDC delegated this task to its sub-committee chaired by the Reserve Bank of India (RBI) governor, effectively making the central bank first among equals in the financial regulatory landscape. Presumably, this, along with their advisory nature, hamstrung the ability of the FSDC and its sub-committee to effectively settle disputes. Consequently, even after a decade of their existence, and each meeting for more than a score times, they have remained ineffective.
From time to time, the judiciary has also attempted to resolve such conflicts. It has inconsistently applied principles of statutory interpretation (not conflict management), such as specific provisions overriding general, recent enactments prevailing over older ones, etc. More recently, the Supreme Court has prescribed a two-step process in which the sector regulator is authorised to decide jurisdiction-related aspects before the CCI can step in, thereby relegating the latter to merely an ex post regulator role.
In resolving disputes, legislature and judiciary have acted more like referees in a wrestling match rather than mediators in a family disagreement. They have aimed to pick winners, instead of looking at the big picture and realising that regulators need to work together for greater good.
While India can learn from experiences of other jurisdictions – like concurrent, coordination, collaborative and mandatory consultation models – these may not bring about desired mindset change. India can’t afford to be run by regulators who refuse to speak with each other. With a likely increase in the number, scope and complexity, it will be useful to heed N K Singh’s advice of creating a standing committee on regulatory management, which can look at these issues holistically, nudge regulators to work together, and help Parliament to hold them to account.
Alternatively, the mandate of the Parliamentary Standing Committee on Subordinate Legislation could be expanded to manage regulatory conflicts. The contribution of parliamentary committees to governance is gradually diminishing. This needs to be reversed, to save administration from administrators.
Kelkar was chairman, 13th Finance Commission, and Mehta is secretary general, CUTS (Consumer Unity & Trust Society) International
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