January 14, 2005, Business Standard
New Delhi
Our Economy Bureau

Lack of clarity in legislation was the major problem facing the regulatory structure in India, Montek Singh Ahluwalia, deputy chairman, Planning Commission, said today. Another critical issue, according to him, was who among independent regulators should be accountable.

“Even with a first-class regulatory system, we need much greater clarity on government policy. For instance, the terms on which public sector incumbents are to be subjected to competition needs to be spelled out,” Ahluwalia said at a seminar on Regulatory Framework for Infrastructure Sector in India jointly organised by the Planning Commission and CUTS Society.

Protection of consumer interest was a desired objective, but there was enormous resistance in India to having a regulator in a sector which had a government monopoly, Ahluwalia admitted.

Both the previous and the present Planning Commission were in favour of a tariff regulatory authority for the Railways to ensure that consumers were charged reasonable charges and cross subsidies were not built into policy.

The proposal had, however, been opposed, he said. Cross subsidy in the power sector leads to tax on a particular category on consumers and there was a case for doing it transparently, by specifying a limit to the extent to which a segment could be taxed to facilitate subsidisation of another.

The Planning Commission was working on a paper to suggest changes in the regulatory structure in India and it would be firmly grounded in international experience, he said.

The quality of people working as regulators was also important. There was a case for paying them higher salaries or allowing government officials the flexibility in terms of job prospects to ensure that only the best were hired.

“This is important as the regulator will have to keep a step ahead of industry players,” Ahluwalia added.

Speaking at the inaugural session, Scott Jacobs of Jacobs and Associates, said that there were large gaps between regulatory practices in utility sectors in East Asian countries and what was considered good practice in OECD (Organisation for Economic Co-operation and Development) countries. Governance needed to be given priority because the present regulations discourage private investment.

Among the major problems faced by regulators were a weak commitment to market reforms by Asian governments, hostile policy environment for good regulation and undeveloped institutional capacities in the regulatory sector, he said.

The high levels of poverty and low consumer capacity to finance investment in infrastructure made the job of regulators difficult. In addition, the separation between operation and regulation and that between promotion and privatisation was not always clear, he pointed out.

In a third of the 22 East Asian utility regulators covered in an ADB report, incumbent firms had regulatory authority. Regulators also had incoherent policy goals. For instance, they had to protect jobs and decrease consumer prices at the same time.