Breaches in NSE underline the need for experts in regulatory bodies

Contact Counsellor

CategoryPolity

Last Updated17/02/2022

The sudden withdrawal of farm laws last year and repeal of the land acquisition ordinance in 2015 are examples of policy backsliding in an otherwise decent record of policy continuity since 1991.
One might justifiably quibble over tariff increases over the last several budgets to promote Atmanirbhar Bharat, but the overall trajectory of tariffs has been downward and average tariffs are now below 10% compared to over 400% before 1991.

History is filled with examples of political influence in the legislative and execution process of policy.
Most such instances are discouraging, however, there are rare cases of creative use of multilateral commitments to engage in tricky domestic reform.
The domestic policy priorities should not be held hostage to external pressures, but they can and ought to be used to push through difficult and desirable domestic reform.
Eg, India’s entry into WTO mandated recognition of product and process patents that were politically hard to embrace when the dominant model in manufacturing was one of “reverse engineering”.
It was possible to offload the political fallout to a non-negotiable multilateral commitment.
For similar reasons, crisis-driven reform has a lot of resonance in almost all environments, including ours.

The golden period of India’s growth fetched an 8.1% increase in realGDP between 2004 and 2009.
However, it was cut short by the global financial crisis and devilled intermittently by institutional weaknesses.
The coal scam and the 2G scam are examples of the inability of institutions to keep pace with rapid growth.
Most market-based economies have a slower institutional change in which institutions play “catch up”.

With growth, institutions also require sophistication, knowledge, and some (not complete) protection from political interference.
Eg, the promulgation of the Monetary Policy Committee (MPC) in 2016, replaced RBI’s internal decision-making driven by the central bank governor to include 3 external experts appointed by the central government to strengthen and bring transparency into monetary policy decisions.
This can be extended to other important government functions, such as the budgetary process.
Successive finance commissions and the Fiscal Responsibility and Budget Management (FRBM) Review Committee have recommended the creation of a fiscal council that, like the MPC, will bring transparency in the budget-making process.
The idea is simple, moderate the influence of the political agenda and powerful interest groups that could, and often do, capture the process.

Policy making is nothing if not art that invokes science when expedient.
However, science ought to become more integral to the policy formulation process in India, and for that to happen crucial changes are necessary in the ecosystem.
Domain experts should be an integral part of the formulation process.
Implementation can be left to the executive.

When the TRAI was first set up, it had a healthy combination of domain experts and public policy professionals, resembling a specialised regulatory agency that reflected a serious intent to strengthen capacity.
Capacity was limited then, but the intent was clearly visible.
In the quarter century since, more and more professionals are now available in India as universities offer courses on regulation and public policy.
The diaspora has always been available to fill the gap. Instead of going down the chosen path, TRAI has reversed gear and today resembles a government department.
In fact, this is the same affliction with almost all regulatory and policy institutions that are now a feature of India’s increasingly market based economy.

As more sectors (eg, the Gati Shakti initiative) engage the private sector, lessons from the last quarter-century should not be wasted — domain expertise is conspicuous by its absence in regulatory and policy institutions.
Commissions tend to be made up of retired civil servants or retired judges.
This is worrying and, therefore, it is vital to create a cadre of professionals with technical expertise for the complex tasks of managing the policy processes.
Retired bureaucrats could be excellent for policy institutions, but not as is the case now, as an entitlement.

The net needs to be cast wider so that politics and policy are distanced, not completely but certainly more than it is today. The recent unravelling of a bizarre episode of regulatory breaches at the National Stock Exchange is just another example of why we need more regulatory expertise.
India should not be in a situation in which it is in perpetual hostage to vested interests of politics and business. When agencies tasked with protecting public interest identify with priorities against the interest of the public, they fail to protect the public.