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Evolution of a Regulatory Framework in India

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September 16, 2017

What is the issue?

  • Transparent regulators are a must for evolution of mature markets.
  • In India, political considerations have time and again forced distortions in regulatory frameworks.

What is a Regulatory Regime?

  • Liberalisation of economies and unleashing of market forces gives birth to regulators and regulatory regimes.
  • Economists described this as the transition of a government’s role from positive intervention to arm’s length superintendence.
  • But the manner in which the regulatory system has been established and ‘Regulatory obstructionism’ to development of businesses is a debatable issue.
  • Lack of transparency and accountability of the regulators in India has been flagged by many economic observers.

Currently how deos the regulatory framework in India look?

  • Over a period of time, a number of regulatory bodies, ranging from RBI, SEBI, IRDA, PFRDA to TRAI, electricity regulators, CCI, FDA have been set up in India.
  • There is a proposal to create a regulator for the aviation and rail traffic business as well and many more may follow.
  • These regulators have been empowered to set the policy agenda, outline regulations, punish non-compliance and garner resources to manage their affairs.
  • The policy direction pursued by every regulator has to support the development of the market of the allocated jurisdiction.
  • However, in Indian democracy, social and political populism has proven to often overtake the economic agenda.

What are the issues concerning regulatory sector?

  • Politicisation - As economic agents inherently intend to maximise profits, market misconduct happens in every domain.
  • Whenever such incidences occur, they have to be dealt with pragmatically but due to political pressures, policy makers go overdrive and frame restrictive policies and denounce regulators.
  • The politicisation of such events has made the regulators in India overcautious & frightened in order to dodge any blame game.
  • Performance - In many cases, non-experts are selected to lead the regulatory bodies thereby affecting technical aspects.
  • Second, the review mechanism for the functioning of the regulatory bodies is not very robust.
  • In particular, it does not include the role of regulators in the development of the market.
  • Upgrading - The inventions and innovations in the sector and the society at large influence the direction of the market.
  • Hence, regulatory mechanisms need to update in consonance with the above mentioned changes without much delay.
  • If these issues aren’t addressed, the development of the mature and well regulated markets will take a serious beating.

What are the larger questions doing the rounds?

  • A regulatory state was conceived as a fast and flexible alternative to the cumbersome and bureaucratic frames of the replaced era.
  • However, questions about the democratic governance and accountability of regulators are being raised around the world.
  • This is because substantial power to make laws has shifted from elected representatives to technocrats sitting in regulatory bodies.
  • The Government should consider appointing a high-level task force immediately to delve deep into these issues.

 

Source: Businessline

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