Did central planning end in July 1991?

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Source: Business Standard

Relevance: Understanding issues involved with central planning

Synopsis: Regulation in India has often tilted towards central planning. There is too much control vested with regulators in India, RBI’s recent decision to ban the storage of customer card data is just one such example.

Market economy vs central planning
  • In a market economy, decisions about the design of products and processes are made by private people under the influence of customer preferences and competition in markets. Whereas under central planning, the government chooses such technical details.
  • In a market economy, it is the market that decides who wins. Under central planning, the winning technology, the winning product category, or the winning firms are those backed and blessed by the government.

The philosophy of control is the core idea behind central planning.

RBI’s response to data leaks

Leaks of personal data from online websites have been in the news. RBI’s response to these leaks has been to put out a regulation, effectively banning the storage of customer card data by payment aggregators (PAs), payment gateways (PGs), and merchants.

  • This ban is excessive, has not emerged out of a cost-benefit analysis, and has followed a weak public consultation process.

RBI’s response indicates that the above-mentioned philosophy of control inherent to central planning is still widespread in India.

Problems with RBI’s move
  • Disruption to consumers: Individuals have been storing card details on merchant websites to make regular payments, without having to enter their card details each time they visit the website. The new RBI regulation disrupts this service. Now, additional time will be spent on supplying information every month for millions of transactions.
  • It forces costs upon firms in technology development and tilts consumer preference towards certain payment technologies.
  • There is a possible risk of technological choices being substantially shaped by the RBI, of a government that picks winners.
  • The regulation does not demonstrate how it meets the proportionality test laid down by the Supreme Court (SC) in the case of Internet Mobile Association of India v. Reserve Bank of India (2018) for delegated legislation.

Issues with regulating bodies

Problem of democratic legitimacy: When unelected officials (in regulating bodies) write law, there is the problem of democratic legitimacy.

  • Consultation: The first pillar of due process, through which democratic legitimacy is achieved, is consultation. The public consultation process of the RBI has been lacking. The discussion paper released by the RBI in September 2019 did not offer a complete ban as a potential policy choice. The document announcing the ban did not show the alternatives to the ban, which were considered by the regulator. RBI should publish the results of the consultation process.
  • Possessing and displaying technical expertise is the second pillar through which regulators achieve democratic legitimacy. A proper cost-benefit analysis should be done. Alternative tools which are least coercive should be the first choice.

Under conditions of low state capacity, regulations in India have often tilted towards central planning and control, where enforcement has been selective and weak. An emerging Indian jurisprudence has started questioning the working of regulators and the checks and balances surrounding the powers of officials in regulatory agencies.

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