Issues with Statutory Regulatory Authorities

Source- This post on Issues with Statutory Regulatory Authorities has been created based on the article “Agenda for regulatory reform” published in the “Business Standard” on 21 June 2024.

UPSC Syllabus-GS Paper-2- Statutory, Regulatory and various Quasi-judicial Bodies.

Context-The article highlights the need to improving the governance of powerful regulators that currently wield significant influence over the Indian economy and citizens’ lives.

There are over 20 Statutory Regulatory Authorities in India overseeing sectors ranging from finance and telecommunications to healthcare and transportation. Together, these bodies directly regulate more than 75% of India’s Gross Domestic Product (GDP). This highlights their important role in maintaining sectoral integrity and consumer protection.

Regulatory bodies’ effectiveness isn’t just about their leaders. Leadership influences strategy and morale, but institutional design with checks and balances is equally crucial.

What are the issues with Statutory Regulatory Authorities in India?

1) Consolidated Powers and Economic Impact-In India, SRAs merge legislative, executive, and judicial powers, giving them significant authority over specific sectors. This authority enables them to oversee and regulate entities within their jurisdiction. This enormous power can affect private sector confidence, potentially slowing down innovation and holding back India’s economic growth.

2) Appointment Process– Currently, most senior personnel in SRAs are former or current government officials. This is because the appointment process is largely controlled by the executive government, with limited involvement of external experts. The tenures of these appointees are inconsistent and uncertain.

3) Delegating Law-Making Authority to Unelected Bodies– In democracies, elected bodies accountable to the public hold the authority to make laws. When this authority is delegated to unelected bodies, rigorous safeguards are necessary. Many Indian laws do not outline clear procedures for regulators to exercise this authority, leading to a “democratic and legitimacy deficit”.

4) Lack of Accountability- Most Indian Statutory Regulatory Authorities (SRAs) are mainly accountable through parliamentary oversight, which includes open discussions on their yearly performance and financial reports. However, these discussions have never taken place in the Indian Parliament for any SRA.

Read more- Issues with the drug regulatory system in India

What should be the way forward?

1) Appointment Reforms-There is a need to create a diverse group of subject matter experts that have predictable and fixed long tenures in regulatory bodies.

2) Autonomy– There is a need to align legislative provisions to empower all SRAs to regulate without needing government approval. This autonomy needs sufficient human resources and financial independence. However, these provisions must include checks-and-balances to prevent abuse of power.

3) Clear Guidelines– Legislative guidelines should outline how regulators are to perform their executive and judicial functions.

4) Robust Accountability– Accountability reforms should focus on three key areas-A) establishing a well-structured board with clear functions and roles

B) introducing appeals processes at tribunals

C) conducting audits by the Comptroller and Auditor General of India.

D) Mandatory open discussions on their yearly performance and financial reports by Parliamentary Committees.

5) Implementing recommendation of Financial Sector Legislative Reforms Commission – The Commission proposed extensive governance reforms applicable to all SRAs across India. It is now important to revisit and update this report to align with current requirements and promptly implement its recommendations.

Question for practice

What are the challenges faced by Statutory Regulatory Authorities in India? What steps should be taken to move forward?