Articles : June 2010

By Udai S Mehta

Regulatory reforms in India lack a consistent and coherent approach. There is no uniformity across regulatory commissions that oversee different infrastructure sectors. A common approach to framing regulatory laws and to cross-cutting considerations like independence, selection mechanism and overlap issues is largely absent. Given this, the Planning Commission has taken an important step to introduce a Regulatory Reform Bill, with the aim of evolving a uniform approach to the regulatory architecture across sectors of the economy.

Infrastructure regulators have been created in an ad hoc manner, paying little attention to coordination between them and relevant ministries. To make matters worse, there is considerable disparity in powers across regulators While some have not been given tariff-setting powers, in some cases the powers under the law have not been notified by their respective ministries. There is an imperative need to streamline the regulatory process in India and bring in more coherence.

India needs more than a trillion dollars of investment in infrastructure over the next decade. Such a large magnitude of investment cannot come from the public sector alone. The private sector also will have to be persuaded to invest more. To attract the private sector, it is vital to have a predictable regulatory environment characterised by coherence across and coordination among its regulatory components. Sectors are linked to each other through forward, backward and horizontal linkages, and regulatory impediments in one sector can spell trouble for another.

According to SL Rao—the country's first electricity regulator who participated in a recent discussion on the Bill organised by Cuts International in Delhi with the Planning Commission—there is a need to control regulatory diarrhoea, by creating multi-sector regulators for cognate sectors, in energy (electricity, petroleum, gas), transport (air, rail, road, water), etc. Given that sectors covered by a single regulator might involve different ministries, one single ministry can hardly influence the functioning of the regulator. Further, it would also necessitate that the regulator reports directly to Parliament than to the line ministries. In this manner, the regulators can work smoothly.

However, the Bill has its share of glitches. For instance, the requirement that the selection committee for a regulatory body/appellate tribunal consists basically of serving and retired bureaucrats makes no sense. The selection committee should include non-government representatives, academia, civil society representatives and professional bodies. This would enable selection of experts from the non-government sector.

Another key drawback of the Bill is that it empowers the regulatory commission to deal with anti-competitive behaviour, which has been a mandate granted to Competition Commission of India (CCI). It has been suggested that there is a need to foster harmony across commissions and formalise the process of interface between regulatory and competition commissions in legal terms. It is best to leave behavioural issues to CCI and structural issues to sector regulators. To avoid a possible conflict between sectoral regulators and CCI, mandatory consultations should be held between them in cases that lie in the intersection of jurisdictions.

The Bill recognises the importance of consumer protection and suggests the establishment of a National Advisory Committee to represent the interests of consumers in each regulated sector. Here, it is important to provide for nomination of consumer representatives on each such national advisory committee. Moreover, the Bill doesn't have provisions for creating a consumer advocacy fund to support consumer organisations.

Further, issues relevant for regulatory accountability have not been dealt with in the Bill. Currently, regulators are accountable through the annual report they submit to the government, which then submits it to Parliament. In the American system, members of independent regulatory bodies appear periodically before a committee of the legislature.

Given that the call for regulatory reforms came from the Prime Minister himself, it is imperative to have sound regulations in place. It is time to look at Regulatory Impact Analysis (RIA) as a tool for effective decision-making. RIA enables systematic assessment of positive and negative impacts of proposed and existing regulations. It encourages decision-makers to think in a structured way and also increases accountability of regulatory actions. It can be used to analyse existing as well as new regulations.

There is a lot of scepticism among relevant stakeholders on the Bill. It is important for the Planning Commission to engage with the stakeholders and take their views before placing the Bill before the Cabinet. Sensitising the stakeholders about the intricacies of the Bill and building a regulatory culture in the country is the need of the hour and a participatory process would ensure a better buy-in from stakeholders.

The writer is a policy analyst at CUTS International.

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