The Hindu Business Line : Regulatory process is the key, not regulators

The book looks at the regulatory mechanisms in India, Cambodia, Indonesia, Vietnam, Kenya, South Africa and Zambia in sectors such as financial services, telecom, energy, water and transport.

Arun S.

A joke that I chanced upon went, “What’s a banking regulator? Someone who rescues and rescues and rescues banks until there are no banks left.” That is a mild one, you’ll agree, given the severe impact of the ‘financial tsunami’ on the lives of many across the world.

India’s banking regulator, however, got some credit for doing the right thing, or let’s say for not doing the wrong thing, during the financial crisis and sheltering the country’s banking sector from the burst of the speculative bubble.

Jokes apart, regulators are often seized with the fantasy to create a perfect or near-perfect world where the playing field or markets are levelled and everyone gets an equal chance to perform, while the consumers get to choose the best.

But take a look at the regulator-talk or why some of the regulators in the country were in the news of late, and you will understand that efforts to ensure ‘perfect competition’ through ‘perfect regulation’ are likely to remain just a fantasy.

Sample these: The much-publicised bizarre fight between the oil regulator and the Anil Ambani group, with the latter making allegations of favouritism against the former and the former alleging threat to him. Or the controversy surrounding the country’s bio-technology regulator — the Genetic Engineering Approval Committee — giving its nod for the commercial cultivation of genetically modified Bt brinjal even as international organisations such as Greenpeace raise voices against the move.

There was also the Telecom Regulatory Authority of India proposing to make it mandatory for mobile service providers to offer their users a pay-per-second billing plan, which led to fears that the regulator was attempting to fix rates. TRAI had to then listen to the industry’s apprehensions on revenues.

The market regulator SEBI and the audit and accountancy regulator ICAI were struggling to lay their hands on details of the Satyam scam during the initial stages, because of lack of powers or for other reasons, including political. Then we had the banking regulator fighting the anti-monopoly watchdog, the Competition Commission of India, to retain its sectoral powers even on competition issues.

Super regulator

Amidst all this, there is talk of the Government mulling a super-regulator for the entire financial services sector and for all public-private partnership projects in infrastructure sectors. There are also proposals for regulators in growing sectors such as retail and realty. Then there are recommendations to set up Oversight Agencies to monitor regulators.

If all this is too confusing and disillusioning, you need to get a clearer view on regulators and their functioning. Not much material is available to give a bird’s eye view of the Indian perspective of a modern regulatory framework vis-À-vis other developing countries. Now an effort has been made towards this end by Jaipur-based consumer group CUTS International.

The organisation’s latest book, Creating Regulators is not the End, Key is the Regulatory Process, edited by the CUTS founder Secretary-General, Pradeep S. Mehta, tries to examine “how regulation actually works in a cross-section of developing countries that have taken significant steps towards liberalisation.”

In this regard, the book analyses the regulatory situation in a cross-section of seven developing countries from Asia and Africa — India, Cambodia, Indonesia, Vietnam, Kenya, South Africa and Zambia — looking into regulated sectors such as financial services, telecom, energy, water and transport in these countries. CUTS International was able to undertake the study with the financial support of Groupe Agence Francaise de Developpement (AFD), Paris.

Effective implementation

The book conveys the lesson learnt due to the financial crisis and the associated regulatory letdown — that “establishment of regulatory commissions is not enough, effective implementation is equally important.”

It rues that instead of establishing regulatory frameworks that suit their peculiar national context, the developing countries have chosen to draw inspiration from industrial country models.

As a conclusion, Mehta says in the book that “strong political commitment on the part of Government to the reform process and consistent policy objectives are necessary preconditions for successful regulatory reforms.”

The study also confirms some of our suspicions — that there is sustained bureaucratic interference in the regulatory process to protect personal interests and also the fact that the less the governmental intervention, the greater will be the success.

The book is a concise compilation as well as a good comparative account of the regulatory scene and its evolution in the African and Asian countries that were studied.

But, instead of confining itself to a mere academic approach, this project of CUTS International — that has offices in India, Zambia, Kenya, Vietnam, Britain and Switzerland — could have been more interesting had it incorporated the viewpoints of actual stakeholders, including consumers in those countries, on the different regulatory regimes.

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