Published: The Financial Express, June 25, 2005

By Pradeep S. Mehta & Vinayak R. Pandey

The Planning Commission is burning midnight oil to finalise its recommendations to the government for setting up an ideal enabling framework for infrastructure regulation across all sectors. It is engaged with several stakeholders to get their views on board, and a general consensus appears to be emerging on several counts.

Whether we need independent regulatory bodies, or should carry on with business-as-usual, of government continuing to handle this function, is now fairly settled. The thinking is on to how to empower the existing regulatory agencies and make these more effective, by learning from past mistakes. Such wider acceptance of independent regulation is evident from the fact that the demand for setting up regulatory agencies in those sectors where we still do not have one is gaining momentum every day. After having regulatory bodies for telecom, ports and electricity sectors, more are likely to be established for aviation, petroleum and gas, and transport sectors soon. The queue is getting longer with time.

Curiously, it is not only businesses who see a better future; it is consumers as well. This echoes the demand for separating the day-to-day regulation from policy formulation and on handing over the former to specialised and autonomous bodies. A consensus appears to have emerged on imparting regulators with required functional autonomy, which would mean imparting necessary decision-making powers to perform. The little experience that India has had so far with independent regulation suggests that regulatory bodies cannot be effective without having functional autonomy.

In the Indian context, the line ministry is viewed as the most potential source of likely threat to regulatory autonomy. Of course, there might be several other possible sources that can undermine the regulator’s autonomy. For instance, regulatory capture by business interests. Another issue on which an agreement seems to have largely emer-ged is about having an omnibus appellant tribunal for all sectoral regulators, with subject experts in corresponding benches. Further, one pioneering thought is to have an omni-bus law which will lay out the regulatory framework, for adoption by the relevant ministries. This need is being felt due to various variances in the sectoral laws, which are being drafted by various line ministries without adhering to the evolved best practices.

  • Regulatory bodies need functional autonomy to be effective
  • The trick is to find an agreed way of combining this with accountability
  • An imaginative approach, such as get-ting Parliament to monitor, is one way

Yet, there are many issues which remain unresolved. The opinions are diverse and, quite often, contradictory. However, interestingly, even mutually contradictory arguments have equally valid concerns and substance at times! This explains why the matter is so complex. For instance, we still have to hammer out a workable solution to hold regulators effectively accountable on a sustained basis, without compromising on the autonomy. There are several other tricky issues, which do not have easy answers. Despite having a near-consensus on providing the regulators with financial autonomy, opinions are divided about the manner in which it should be done. While there are strong arguments in favour of allowing regulators to raise funds through the imposing of a cess, there are genuine concerns as well. Perhaps, we need a combination of both approaches, i.e. stable state funding, and allo-wing the regulator to impose a small cess. As in some other cases, the debate on this issue still remains inconclusive.

A possible overlap of functions between the sectoral regulators and the competition authority is another area on which views are entirely divided. Either the sectoral regulator and the competition authority can be empowered on an exclusive basis. The other option is to provide for joint jurisdiction, with clear functional demarcation. Presently, the Telecom Regulatory Authority of India Act does not prevent the competition authority from looking into competition dimensions. However, the Electricity Act, 2003, empowers the regulator to solely decide about competition dimensions, without recognising any possible role of the competition authority.

Therefore, prior to taking a firm decision, we must explore the arrangements in other parts of the world in this regard and the relative effectiveness. In this context, recently, a roundtable was organised by our organisation, that attracted a heterogenous group, including practitioners, politicians, academicians and opinion makers. The con- sensus which emerged was that since the regulator does not report to the line ministry concerned, the latter should not be expected to defend the decisions made by the former in Parliament. However, the line ministry cannot get away with possible systemic and process-related deficiencies.

It was suggested, given that the count of sectoral regulators in the country is set to grow, it would be appropriate to constitute a Parliamentary Standing Committee on Regulation. In such a scenario, regulators should be held accountable to the Standing Committee and the latter should be empowered to summon a regulator as and when required, to explain the possible systemic flaws, such as repeated setting aside of regulator’s orders by appellant authority. Though the effectiveness of this arrangement can be contested, the message is that of using imaginative approaches and moving towards a consensus at the earliest possible opportunity. The Planning Commission is seized of this fact, that the issues are fairly complex and challenging. Therefore, it plans to launch a discussion paper, with the expectation that it will be able to bridge the gaps, sooner than later.