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CHECKS AND CONTROLS
- There must be a holistic approach to government regulation

The main issue for the Indian economy is the poor implementation of all government programmes. A major reason is the opaque working of the regulatory framework.

Legislation reflects the intent of a government in power and the will of the people. Legislation, to become practice, requires the work of a multitude of people, usually employed in government. They do so by framing rules, procedures, penalties for violation, and use precedents to take decisions that will enable implementation. This constitutes the regulatory framework.

Most of such regulation is done by government departments. These function in an opaque veil of secrecy. The Right to Information Act passed last year will, over time, induce transparency in it. It remains opaque since the act is new and citizens are yet to familiarize themselves with its use. For most government decisions, there is no public knowledge about what led to those decisions.

When large expenditures are involved, the records are not accessible. Not all parties concerned with or affected by the decision get an opportunity to give their views and have them considered. Even in the case of competitive bids, the government retains some discretion in selecting a contracting party. The government does not have systems of monitoring, follow-up and severe penalties for violation of regulations laid down by the authority. The regulating department has few inspection staff for the purpose.

A good case in point is the regulation of drugs and pharmaceuticals. The law does not allow retailers to sell ‘ethical’ drugs except against doctors’ prescriptions. However, it is easy anywhere in India to buy the most dangerous drugs in almost any quantity without prescription. Rarely are retailers and their books inspected and checked to ensure that there are valid doctors’ prescriptions for sales made, and that the prescriptions relate to the customer to whom the drugs were sold. There are very few drugs inspectors, and retailers are rarely visited more than once a year by inspectors. Even when they do, it is possible with political, bureaucratic or money influence to put off punishment.

Schools, colleges and professional institutions are subject to regulation by the university, or other departments of the government. However, there is little inspection and few institutions are punished for violations of the laid-down requirements. In an educational system, institutions may not have enough classrooms, rest-rooms, water in the toilets. The teachers may be unqualified or there might be inadequate teaching aids for which institutions charge extra fees, but rarely are such malpractices found out and the perpetrators punished.

Road construction and repairs are done shoddily and at a higher cost than is required. Nevertheless, there is no way to check and control such wasteful work. We can mention innumerable instances where the government is unable to give even partial effect to the regulations it has for implementing legislations and government policies.

The second type of agency used for regulation is where the legislature creates autonomous and self-regulatory institutions that have the quasi-judicial powers of investigation, adjudication and punishment. These institutions lay down their rules and standards and have the authority to inspect, monitor and punish violators. Such self-regulation with statutory powers takes place largely in specialized fields. Some examples are the Institute of Chartered Accountants, Institute of Cost and Works Accountants, Institute of Company Secretaries, Institute of Architects, Medical Council of India, Bar Council and so on. These institutions have clear rules regarding eligibility for membership, and only members can practice that profession. This makes them similar to the ancient guilds of professions which kept the entry into a particular profession restricted to only those approved by the guild. Many of them also lay down the rules of conduct for the profession, both in ethical and technical terms. They design curricula, admit students, run classes for them and conduct examinations. The self-regulating body earns substantial fees from such activity. It also has committees to rule on allegations of malpractice. Unfortunately, in India, it is the rare professional who receives punishment after due investigation by his statutory professional body and even rarer are the instances of one professional appearing against another in such a case. This is unlike in the United States of America, where malpractice suits against such professionals are common and giving of evidence by fellow-professionals equally so.

The third type of regulation is by the creation of statutory quasi-judicial and independent bodies by the government which then hands over its powers to the regulatory body. The Reserve Bank of India was given such powers to regulate commercial banks, while the Securities and Exchange Board of India is the regulator of financial products, agents and markets. In recent years, there has been a proliferation of such institutions for the infrastructure (electricity, telecommunications, and minor ports) and more are in the offing for downstream oil and gas, civil aviation, coal, railways and pharmaceuticals. These institutions are superior to government departments in their regulatory decision-making, since they are time-bound, transparent and consultative. However, there are too many of them. Their members are mostly retired bureaucrats, and they are chary of innovative measures within the law as well as of using their penal powers.

There must be a holistic approach to regulation. A major reason for bureaucratic delays and inefficiency is the time taken in consultation with other ministries and departments of government. The independent regulator has the same problem. The electricity regulator has no control over input prices of coal or oil or gas and its regulatory authority over tariffs is confined to the operations within the power sector. We would be much better off with a single energy regulator. We should also aim for fewer regulators. They proliferate where the state has either sole or concurrent constitutional powers over areas like water and electricity. Innovative methods like giving a state government the power to issue directions to a regional regulatory body covering many states, but creating only four regional bodies instead of 25 or so state-level ones, might be considered.

In all such bodies, there must be a strong dose of accountability. Anybody should be able to appeal to a higher judicial authority when the regulatory body seems to be not fully applying its mind or is ignoring parts of its mandate. At present, the ministry concerned oversees the self-regulated bodies. However, this oversight is primarily on matters relating to finances, not discipline and the quality of members and their practice. Regulatory bodies must rule in a manner that makes the ruling of one body consistent with that of another on a similar issue. A body of regulatory laws and precedents must evolve. This will help the regulated parties to get some predictability from regulatory decisions.

There is a fourth category consisting of areas where the government has no regulatory oversight at all — courier services, nursing homes, for a long time smaller banks, chit funds, television cable operators, to name a few. These are (or were) not subject to any regulation, so that the user enjoys little protection from exploitation.

Regulation is inevitable and necessary in all areas of activity. It should be transparent and all concerned should have a right to be consulted. The regulator should be accountable for its functioning and the quality of its decisions. The manning of such regulatory positions should be such that the persons are well-qualified, and there are few regulatory bodies so that the limited resources available are not overstretched. The responsibility should be holistic so that the regulator is responsible for all the major aspects of the area for that he is regulating.

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