Regulating the regulators

The Planning Commission has sought the views of stakeholders and the general public on the Draft Regulatory Reform Bill 2013 by putting it on its website. The Bill essentially aims at creating a legislation which will monitor the working of sectoral regulators, to gauge their accountability while maintaining their independence. Further, the Bill suggests that regulatory commissions and appellate tribunals will have an institutional framework.

According to the Planning Commission, the new law is needed to maintain convergence in the way different regulators function and ensure that consistency is maintained in issues such as determination of tariffs, enforcement of performance standards, and promoting investment, especially in the infrastructure sector including electricity, telecom, Internet, airports, oil, gas, and ports. The aim of the Bill, when enacted, will be to ensure that consumers’ interest is consistently protected and that the principles of competition are abided by.

The note, introducing the Bill, specifies that the draft Bill is designed to supplement existing sector-specific legislations. However, the draft Bill states that it will have overriding effects in cases of inconsistencies with other existing enactments. Exceptions of these overriding effects have, however, been made for the Atomic Energy Act, 1962, the Consumer Protection Act, 1986 and the Competition Act, 2002.

A moot question here is with several existing regulators – both sector-specific and cross-sector -- is there a need for another monitoring mechanism? If yes, what should be expected from this institutional framework proposed by the Planning Commission? A related question is, whether this is another attempt for formation of a super regulator.

The government has realised that the concept of super regulators will face several implementation issues. As a result, super regulators, both in the financial and environment sectors, could not be formed. In the case of the environment, the government has clarified that the Supreme Court's suggestion to set up a super regulator for granting environment and forest clearances for projects cannot be implemented, as such clearances are complex and require different statutory authorities. In the financial sector, for the purpose of regulatory convergence, the government has formed the Financial Sector Legislative Reforms Commission headed by retired Supreme Court judge, B N Srikrishna. The Commission has proposed a unified financial regulatory agency for markets, insurance, commodities and pension with the idea to harmonise financial sector laws, barring banking.

Why is regulatory convergence required?

The Reserve Bank of India (RBI) governor, Raghuram Rajan, while speaking at the Delhi Economic Conclave on 11 December, said that over-regulation stifles the way industry functions and that each regulator should perform its function to meet the objectives with which it was created. This suggests that regulators function in such a way that they are accountable to the market and the people. And a mechanism ensuring cohesiveness amongst regulators will only help.

Nathan Economic Consulting India Pvt Ltd has brought out a paper on regulations in India, which, while highlighting the importance of cross-sector and sector-specific regulators in liberalised markets such as India, has also emphasised the need for regulatory convergence among regulators as one of the key challenges.

Overlapping jurisdictions Countries such as India have witnessed problems of overlapping jurisdictions resulting in poor enforcement of regulations and inordinate delays.

Rajan himself admitted in a television interview in March 2013, that regulatory hurdles of different kinds are delaying projects worth nearly Rs 2 trillion.

Recent face-offs between regulators such as the RBI and the Competition Commission of India (CCI) regarding mergers in the banking sector have left experts and practitioners divided on the issue of whether the RBI should regulate banking functions while the CCI regulates areas dealing with competition.

The government’s intervention in the larger interest of consumers, when it kept the merger of a failing bank with another bank outside the purview of CCI, came as a breather as large public money was involved.

In the electricity sector, the sectoral regulator, the Central Electricity Regulation Commission (CERC) and the CCI have been quarrelling over the issue of “abuse of dominance”. According to the Electricity Act of 2003, an “appropriate commission” can issue directions to a generating company if it abuses its dominant position or is part of a combination likely to harm competition in the sector. The CCI and the CERC disagree on which, out of the two, is the appropriate commission.

The fallout of such ambiguity is forum shopping to seek regulators who favour the parties involved, or appeal in courts that aggrieved parties will resort to, thus defeating the purpose of the said regulation and causing unnecessary delays.

In November this year, the Delhi High Court stayed the CCI proceedings against three oil marketing companies, Indian Oil Corporation Ltd (IOCL), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) on anti-competitive behaviour in fixing petrol prices.

These companies had contended that the Petroleum and Natural Gas Regulatory Board (PNGRB), which is the regulator of the sector and not the CCI, has the jurisdiction on this issue.

Consumer interest Regulatory convergence is thus necessary to avoid biases due to interpretation and jurisdictional overlap more so, to deal with the problems of legislative ambiguity. The best way to gauge regulatory convergence is to see if consumers’ interests are protected through better prices and quality, with wider choices, and if the producers remain efficient and innovative.

It is with the objectives of consumer protection that the Planning Commission should formalise the draft regulatory reform Bill. Further, it should ensure independent and accountable functioning of each sectoral regulator and also take care that legislative ambiguity is interpreted in such a way that efficiency rather than delays are brought in to economic activities.

The Plan panel will however have to be cautious that in the process of implementing a regulatory mechanism too many changes in existing regulations are not required. A super regulator in the financial sector has remained an idea because several acts will have to be substantially amended.

Singh is Principal Economist, while Francis is an Economist at Nathan Economic Consulting India. Views expressed are personal.

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