The concept of regulatory agencies, which are now fulcrums of every economy to enforce standards and safety and oversee commerce, originated in the US. The Interstate & Commerce Commission set up there in 1887 is considered to be the first agency with powers somewhat similar to those of modern day Government regulators. Subsequently, in the first half of the 20th century Food and Drug Administration and later Environment Protection Agency and Occupational Safety and Health Administration came into existence. Towards the later part of the 20th century, owing to economic expansion, infrastructure growth, large-scale entry of private players and currency of new public management, other countries of the world realised the need of a ‘regulator’ consisting of technical experts operating in a framework of Government oversight to guide the functioning of various stakeholders in a particular sector.
Apart from semi-legal functions, these bodies were given a social development mandate: They were to ensure that the benefits of the economy’s expansion should not only line the pockets of manufacturers and service providers as profit, but would percolate down to consumers and users through reasonable pricing, easy availability of products and enforcement of quality and safety.
In almost all major countries of the world, regulatory structures have come to occupy an important place in the state-corporate interface, as a quasi-judicial body representing a neutral legal environment. They have become an instrument of confidence building for private investors, one that would protect them from arbitrary actions of the state.
The growth of such institutions is usually connected with the political and economic circumstances prevailing in a country. For instance, in the US, it came into being towards the end of 19th century, the period of gold rush when mining corporations were set up in large numbers in the western region of the country. In India, after the economy opened up in 1991 and private investors entered the sectors that were in the hands of the public sector, the market became competitive. This necessitated the formation of regulatory bodies, which could settle disputes speedily without much judicial paraphernalia. In the initial stages of deregulation, regulatory structures were created in core economic and commercial sectors such as, capital markets, telecom, power and insurance. Later on Pension Fund Regulatory and Development Authority and Petroleum and Natural Gas Regulatory Board came into being. With the stress on environment, climate change and sustainable development, now we have a National Green Tribunal, while talks are on to have regulatory bodies in biotechnology and microfinance sectors.
Existence of effective regulatory mechanism yields several benefits to stakeholders. In any dispute, decisions are taken by functionaries who have the expertise and hence, are more acceptable to the parties. Unlike other wings of the Government, regulators are prompt as they are not bogged down by procedures. Since they enjoy a certain degree of freedom from executive and legislature, their decisions often are more innovative. Definitely, their presence ensures better standards of performance by service providers and reasonable rates of services to consumers. The presence of a regulator not only encourages greater transparency in the functioning of the Government, it also attracts foreign investment due to a positive environment and faster redressal system.
But the system has its weaknesses too. Multiplicity of regulators in inter-related sectors such as gas and power is a hindrance because the issue of regulatory overlaps. The recent tussle between SEBI and IRDA over jurisdiction over ULIPS is a case in point. What is noteworthy is that despite the existence of so many regulatory bodies, often there are issues that do not fall under the ambit of any one of them. Further, the interface between the Government and the regulatory agency in some sectors is still asymmetrical. At the policy formulation stage itself there seems to be lack of communication between them as was evident recently in the case of 2G spectrum. Further, the Government in special cases can decide to roll the powers back to itself.
There is no doubt that the presence of a regulator has worked well for our system. However, there is scope for adding more teeth to the functioning of a regulatory agency. India would do well to consider adopting some of the features of the British model and unify related utilities such as, coal, power, petroleum and gas under a single agency overseeing their functions.
Further, there is need for convergence to tackle the implications of complex financial products such as ULIPS. Creation of an overarching entity, which could take a comprehensive view on overlapping issues, would augur well. In order to promptly address the concerns of regulators, an annual report on the regulators should be tabled in the Parliament with express mention of issues where the Ministry and regulator have differences.
The Government also needs to take corrective action on issues such as bureaucratisation, heavy costs, selection of candidates etc. But most important, it is high time to consider increasing the number of members and opening new benches at different locations to tackle the issue of high pendency of cases before regulators.
