Is this a UPA plot to defang independent regulators?

UPA is planning a Bill for oversight of independent regulators that could effectively reduce their independence.

R Jagannathan August 25, 2012 08:59:25 IST
Is this a UPA plot to defang independent regulators?

Who will mind the minders? One of the downsides of having a market economy and private sector competition is that you need many regulators and adjudicators to police their activities. As it has been noted before, regulator raj has replaced the licence-permit raj.

Thus you have the Telecom Regulatory Authority of India (Trai) to scrutinise telecoms, the Competition Commission of India (CCI) to prevent monopolies, and the Central Electricity Regulatory Commission (CERC) to mind the power sector – to name just a few. In the financial sector, you have topdog Reserve Bank of India, market watchdog Sebi, and insurance sheepdog Irda.

But what if the regulators themselves are goofing up? Who will rap them on the knuckles and tell them what to do?

Is this a UPA plot to defang independent regulators


A new law now wending its way through government has an answer: CAG, Parliament, and Manmohan Singh.

Well, not exactly. The Regulatory Reforms Bill – as the law is called – proposes to bring the regulatory agencies under the ambit of the Comptroller and Auditor General (CAG) and be accountable to parliament, reports The Economic Times.The Bill will bring all regulatory agencies, barring financial sector ones like Sebi and Irda, under it.

But a controversial provision in the proposed law says that the government will have the right to issue “directions to a regulatory commission with prior approval of the concerned minister and the Prime Minister.”

This provision has raised hackles all around. If government can issue directives to regulators, it will obviously erode their independence. What is the point of having an independent regulator who has to constantly look over his shoulder to figure out what the government wants?

Two points can be made, though.

It is not as if the regulators are too independent even now. Most regulators are really retiring, or retired, bureaucrats – and they would not normally have landed their jobs without being acceptable to their bosses. Thus, Trai’s current boss is Rahul Khullar, who retired as commerce secretary earlier this year. Sebi’s boss UK Sinha is a former head of the UTI Mutual Fund. Its earlier bosses were heads of the LIC and/or parts of the Delhi babulog. The CCI’s current supremo is Ashok Chawla, a former finance secretary, and the monetary topdog is a former finance secretary, too. (For more on how retired babus end up never retiring, read here and here).

Moreover, even if a regulator were to show a real taste for independence, his dependence on government – for funds, for obtaining good talent for his organisation from other branches of government – would make him wary about taking on the government too often. Thus Sebi found nothing wrong in the ONGC auction last March, when LIC had to pitch in with a last-minute bid that still failed to make it before the closing bell. The LIC bid should normally have been invalidated and the ONGC auction should have failed.

The Reserve Bank’s D Subbarao, who has been relatively independent, failed in his attempts to convince the finance minister (then Pranab Mukherjee) that he should head the Financial Stability and Development Council. Pranab-da prevailed, with a diminution in the independence of the RBI.

Clearly, regulators can be reined in even when there is no law telling them to listen to the executive.

To this inherent disability, we will now have the CAG, parliament and various ministers adding to their discomfiture as regulators.

While parliamentary oversight is not new to regulators in a democracy – US Fed Chairmen have to regularly depose before Congress – the problem relates to giving the executive power over regulators when it already has the edge in terms of ability to influence them.

Now consider how the provision to allow ministers to issue directives to regulators would have played out in the 2G scam.

Andimuthu Raja, the minister concerned, assuming he had an independent-minded Trai on his hands, would essentially have browbeaten the PM – especially a PM like Manmohan Singh – to let him issue directives to Trai. More so in a coalition era where allies almost own their ministries – to the exclusion of the PM.

This is what happened with Dayanidhi Maran, Raja’s predecessor, who got Manmohan Singh to back off on spectrum. According to a Tehelka report, “On 23 February 2006, with the approval of Prime Minister Manmohan Singh, a Group of Ministers comprising the Minister for Defence, Minister for Home Affairs, Minister for Finance, Minister for Parliamentary Affairs and Telecom Minister was constituted to look into various issues concerning effective and optimum usage of spectrum. The terms of reference also included suggesting a spectrum pricing policy.”

But, as we noted earlier in Firstpost, just five days later, Maran wrote to the PM and got this order rescinded. Telecom licensing and spectrum pricing were effectively moved out of the GoM’s purview, and Maran became the sole arbiter of its fortunes. It was this change made by Maran, against the PM’s wishes, that allowed Raja, too, to get his own way on spectrum. We all know what happened afterwards. So what is the possibility that a Raja-like minister will get the PM’s concurrence to issue directives to a regulator to bend him or her to his will?

The UPA is up to no good trying to regulate regulators with its new Bill. Unless the law restricts interference to very vital issues of national security or well-articulated public needs, the administrative ministers and the PM should not be given the right to meddle with the independence of regulators.

The right way to independent regulation is to have a transparent process for selection to the top regulatory jobs, where outside talent, with strong domain knowledge, should be given preference over bureaucratic contenders. But this kind of reform is nowhere part of the Regulatory Reforms Bill, it appears.

Only time will tell if the proposed law is something intended to ensure accountability in regulatory agencies, or a master UPA plot to defang all independent-minded regulators.

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