The Telegraph
Since 1st March, 1999
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- Independent regulation is meaningful only when focussed

Indian governance has alienated people from government. Procedures are complex and secretive so that even many government servants find them hard to follow. Governments are unable to implement programmes faithfully, fully and without waste and corruption. Consultation and participation of people most affected by its decisions are poor. There is no holistic decision-making but only sectoral ones. Major decisions are announced without giving reasoned arguments to show why one decision was made as against other options.

The institution of independent regulation was introduced to overcome such criticism, especially where large sums of money have to be spent through decisions that could have major effects on the economy or which could affect large groups of people.

Independent regulation dates back to similar agencies created in the United States of America to deal with interstate commerce, aviation, transport and so on over the last century. President Theodore Roosevelt created many such agencies during the “New Deal”. Other countries like the United Kingdom followed suit. The UK’s bonanza of North Sea gas led to the creation of the Gas Regulator, followed by the regulator for electricity when it was being privatized.

The unique feature of independent regulatory agencies is the distancing of the influence of government and the other stakeholders and interested groups. All matters have to be decided in consultation with all concerned, every view is available to all, all data and documents are open to inspection and copying, and every decision has to give reasons to support why that particular decision and not any suggested by others was taken. Transparency, consultation and reasoned orders are mandated. The intention was to give investors the confidence that decisions that affected their investment would be taken in a manner that was free from other external influences and took into consideration the investor and the consumer interest. Decisions would be predictable and not subject to frequent change and uncertainty.

The first such independent regulatory commission in India was set up in Orissa for electricity. The Central Electricity Regulatory Commission came in 1998 and since then every state in India has established an electricity regulatory commission, since electricity is a concurrent subject under the Constitution. There are now 24 or so electricity regulatory commissions with perhaps 50 members.

An oil and gas regulator is proposed; independent regulators have been talked about for coal as also railways, civil aviation, steel and other sectors. Any ministry that deals with infrastructure services or which has to take tariff decisions or permit investment or licence activity seems to be considering the creation of a regulatory commission. This proliferation of new “independent” regulatory bodies could add another layer of clutter to our governance structure without improving it. We must build safeguards to keep them effective.

There are few people that can run them. A member of an independent regulatory agency must be open-minded and willing to be persuaded by reasoning, with a modicum of understanding of corporate financial statements, essentials of cost accounting, of the law that created them and related legislation, of basic management concepts, and knowledge of the essential features of the system to be regulated. Members must carry no ideological baggage for or against the private or public sector. They must not be cut off from India’s sociopolitical context and the sector they have to regulate. This is the chief reason why proliferation of regulatory agencies must be discouraged.

However, the idea of making decisions transparent, consultative and reasoned is a good one and will restore confidence in our governance. We should get the benefit without the excessive proliferation.

We can do this by creating such agencies without reference to the closely held turf boundaries of ministries and departments of governments. In this way we can also deal with another fault in our governance, that decisions are taken without coordinating with other aspects that might fall in the purview of other ministries or departments.

We will need a better selection process than we had till now. It has so far largely shifted retired and retiring government servants to these regulatory commissions. Instead, a standing group of eminent citizens, chaired perhaps by a Lok Ayukta, could be created to select regulators. Candidates must go through an intensive training programme to familiarize them with the topics mentioned earlier. With classroom exercises to reinforce their learning, it should be possible to weed out those who do not take to the training. The rest could then be appointed. The standing group could also be responsible to consider complaints against regulators, have them examined and with powers to take the necessary actions. We would then have accountability of the regulators. The courts should pull up agencies whose orders are frequently overruled on appeal.

It should be open to any citizen to go to court demanding that government and the commissions perform their duties as required by law. Governments have most times for example, delayed selection and appointments within the time frame laid down by law or the qualifications required of regulators. Regulatory commissions have not submitted to the legislature the reports required of them. These violations must not be condoned and severe action must be taken to enforce them.

To avoid regulatory proliferation and ensure holistic decision-making, we could have a central energy regulator instead of separate ones for electricity, upstream oil, downstream oil, gas and coal. This regulator would be responsible for tariffs and licensing of production, transmission, distribution, and supply of coal, gas and electricity. This will ensure that the interests of all can be coordinated, especially since electricity, a major user of the others, has its prices capped. Oil and oil products could be regulated separately since issues of national security and highly technical issues in oil exploration have to be considered. Retail distribution of oil and oil products has very different issues for consideration.

At the state level the state electricity commissions could also be made responsible for a closely related area, namely water, including permission for groundwater exploitation, pricing, and so on. Since subsidized or free electricity is responsible for the over-exploitation of groundwater, this could help to relate the one to the other.

We have a national pharmaceutical pricing authority, separate drugs regulatory authorities in each state, while public health aspects like water quality, sanitation, garbage removal, and so on are not coordinated but are departmentally and poorly regulated. We could instead consider national and state level health regulators who could look at specific health issues in an integrated fashion. Licensing of hospitals, nursing homes, laboratories, retailers, drug manufacturers, their inspection by a neutral agency at periodic intervals, prices charged for selected medicines, holding responsible the agencies and individuals responsible for water contamination, poor sanitation, could come under such an agency. It will be a large brief but if the tasks are performed in the open and with public petitions and participation we might get better results than we have till date. This will also make it possible to put the inspectors in the public gaze and hopefully make them effective.

The essence is to promote transparency, public participation and open decision-making wherever public interest is involved. Governments in India have invariably been secretive, tending towards engagement in superficial consultation and rarely giving reasons for their decisions. They are unlikely to change soon.

If we do not look at such holistic responsibility for regulatory agencies we would be creating a multitude of regulatory agencies in addition to government departments, without any improvement in the services they have to regulate. A regulatory morass is the inevitable consequence of regulatory proliferation. It does not have to be so.

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