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Home > Business > Special

Should retired bureaucrats be regulators?

June 25, 2003

They bring grassroots knowledge to the job, but the question of accountability is a sticking point.

S P Gupta, Member, Planning Commission

The appointment of regulators is akin to a zero-sum game where one needs to balance experience with technical knowledge.

While ensuring that the regulatory body is amenable to change it is important that we do not jump from public monopoly to private monopoly.

The selection of regulators should take place through a screening committee, wherein a judicious mix of government officials and private professional agents should be considered.

But having said that, it is true that government officials by the virtueof dealing with vital and conflicting issues over the years, have built up a bank of knowledge and experience that can come in handy in resolving contentious matters.

Moreover, Indian Administrative Service officers are familiar with grassroots problems that give them unrivalled insights and expertise as far as the domestic arena is concerned.

There have been instances where solutions based on foreign models have had meagre success precisely because local needs have been neglected.

This does not mean that foreign practices should be disregarded, especially on the issue of recruiting independent professionals.

In fact, India should take lessons from countries like the United Kingdom, where regulatory bodies have had a relatively smooth run.

Interestingly, members of the regulatory panel in Britain belong to different spheres instead of just being from a civil service background.

It would do India good if the British models were studied carefully. There is a need for regulators to be worldly wise to incorporate the positive aspects of the foreign regulatory systems.

There is, of course, a common grouse that when government officials opt for international jobs, or jobs in the corporate sector there can be cases of favouritism.

But that sort of problem does not exist when they are asked to be the regulator, and here again, the ability of government officials in senior positions does give them the advantage of being seen as a neutral referee compared with someone from industry.

And if a country is trying to reform by reducing the role of the government and putting in place a regulatory structure, the endeavour should be in the direction of choosing someone who is neutral and can resist the temptation of intervening at the slightest excuse.

In fact, bureaucrats have another advantage, in that after they retire they become critics of those very policies that they pursued while in office.

This allows them to don the mantle of a regulator and understand industry's perspective. This allows them to be facilitators of change.

However, I have also seen several cases where the bureaucrats have carried over their obstructionist tendencies across the fence, and have become more of a burden than an asset because they have not been flexible.

Another disturbing trend is the practice of appointing government officials on the brink of retirement as regulators to extend their tenure.

After years of being in power it becomes difficult relinquish the privileges accorded to them by their posts.

It is important that the post of the regulator is not reduced to being a mere vehicle to satisfy the need of the bureaucrats to remain in power or given as a prize for good work.

One needs to think in a case-specific way. Sectors like petroleum, information technology would have no use for civil servants.

In the power sector, for instance, a person from a technical institute like NTPC would be more competent.

Thus, professional people who are well aware of the technical and legal nuances of the issues involved should be employed in such sectors.

The selection of the regulator is a sensitive issue and any opinion expressed in this regard should be shorn of any kind of rhetoric.

Most of the views that have been doing the rounds are more like slogans that serve no constructive purpose.

One needs to be objective and take a balanced perspective rather than lobbying for people belonging to just one sphere.

Regulatory bodies require technical prowess along with practical knowledge about domestic issues and we need to bring in both elements so that the regulator can perform its duties efficiently.

Nilotpal Basu, MP (Rajya Sabha), CPI (M)

It is a strange coincidence that when I was asked to write this piece the sordid story of N Rangachary, the former chairman of Insurance Regulatory Development Authority-- touted to be the best regulator in the country-- hit the news.

What Rangachary has managed to do is shell out Rs 10 crore (Rs 100 million)from IRDA coffers to create an Institute of Risk Management in Hyderabad. But what is more reprehensible is that he appointed himself lifelong head of this institute.

Whether the creation of such an institute falls within the statutory ambit of the IRDA is a question that will be debated for long by the executive or even the judiciary.

But the question over which there can be no ambiguity is that Rangachary had no business to appoint himself head of the nascent institute and provide himself with a lifelong provision. There is a clear case of "conflict of interest".

Such unseemly controversies have not been rare. Earlier, Parliament had debated audit remarks by the Comptroller and Auditor General where it had been pointed out that the Telecom Regulatory Authority of India had allowed its members to draw daily allowances of as much as $ 500 during foreign tours-- five times more than what government of India secretaries were eligible for.

There are many similar instances concerning other regulators. But the larger question that one must address is the nature of the regulator's functioning. And within the context of this larger question, we need to consider the kind of incumbents that we need to head these regulatory bodies.

The issue of regulation has evolved following the opening up of various sectors of the economy with competing entities for market shares in goods and services.

To start with, consider the basic difficulty that arose with the opening up of the telecom sector without a regulatory body.

Against the background of the huge controversy that subsequently emerged, the government ultimately introduced the Trai Bill which was passed by Parliament with several amendments.

Thus today, a number of regulators are in operation-- the Securities and Exchange Board of India, IRDA, Trai or the Central Electricity Regulatory Commission and State Electricity Commissions.

Increasingly, however, there is a perception that these regulators are disproportionately bothered by the concerns of the various market entities-- and consumers and their interests are big casualties. Two major issues arise out of this situation.

In a country like India what should constitute the regulator's primary concern? Should they be concerned with whether there is a need to properly define and distinguish the categories of consumers?

There are examples like the British regulator in the power sector that did not flinch from candidly asserting that the regulator's primary concerns should be to protect the interests of the poorer and, therefore more vulnerable, sections of consumers.

This is only natural and perhaps more true for a country like India. But what is happening today is quite the opposite.

The other important question that has arisen revolves round accountability. It is true that regulators have to be independent.

But should this independence be unqualified or uncircumscribed by the need for accountability? All regulators are statutory institutions -- products of parliamentary legislation.

But again, they are not accountable to Parliament-- only to the executive. This, in effect, reinforces the government's control over the regulators.

The government's accountability to Parliament on the question of the regulators' functioning is being increasingly relinquished on the plea that there can be no interference with the autonomy and independence of these regulatory bodies.

It is against this complex background that the choice of incumbent heads of regulatory bodies to ensure independent, accountable functioning to secure the most vulnerable consumers becomes important.

But as has been evident, the choice of the regulator has, more often than not, fallen on former government officials. This puts a major strain on the objectivity of choice.

These postings have been viewed as rewards for "loyalty," and competence has been a sad casualty. Such an approach has also paved the way for the emergence of a powerful nexus between the government-- regulators-- and corporations.

If such a nexus (that was so effectively described and deplored by the Vohra Committee report) comes to distort regulatory functioning, governance, which everybody seems to be obsessed with at this juncture, becomes the single biggest casualty.

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