Regulators don’t need constitutional status

Context: Should Indian regulatory agencies be given constitutional status? It is argued that Indian regulatory agencies are often unable to withstand political pressure from the elected government of the day, which affects the way they perform their functions.

So, granting them constitutional sanctity would “restore symmetry” between regulatory agencies and the elected government.

Though tempting, it’s still a weak argument.

Instead, provisions to secure transparency and public accountability will go a longer way in securing true independence for a regulator than conferring constitutional status on it.

What type of entities are given Constitutional status?

Mature constitutions cement the place of two types of entities in society.

First, those bodies that make laws and must be elected by the people. These bodies are hardwired into the Constitution to secure the people’s right to elect their representatives. For instance: Election of central and state legislature, their composition etc

Second, the Constitution fortifies institutions that are designed to exercise checks and balances on elected bodies and safeguard against majoritarian tendencies. For instance, it fortifies the position of the higher judiciary, the comptroller and auditor general’s office and the election commission, etc.

Why every apolitical body should not be granted Constitutional status?

Since Constitutions are (and should be) harder to amend than parliamentary law, granting permanence to every apolitical institution by hard-wiring it into the Constitution would make for a bulky and potentially an easily amendable Constitution.

Regulatory agencies do not comprise elected representatives of the people. In fact, many argue that they comprise technocratic elites who make regulations that have the binding effect of the law, license and regulate intermediating firms.

Credible commitment: When the government sets up a regulator, it cedes its sovereign powers to govern that area of the economy. By doing so, it signals its commitment (credible commitment) to policy stability. In fact, in a democracy, it is the legislature’s prerogative to decide whether to cede its sovereign power to regulate a sector, how much power to cede, and the constraints within which regulators must work. Since regulators exercise law-making and enforcement powers without having to ever face an election, making them accountable to the elected representatives is effectively the only way to hold them accountable to the people at all. This illustrates that they do not perform a function that should be hardwired in a Constitution.

No connection b/w achievement of its purpose and its legal status: A key argument for conferring constitutional status, specifically on the Reserve Bank of India, is to allow it to conduct monetary policy independently. The evidence to substantiate this claim is weak. For instance: Early findings of researchers at the Bank of England show no connection between a central bank’s legal form and the achievement of its public purpose (Bholat and Gutierrez, 2019).

What is the alternative to secure independence of regulatory bodies?

In the absence of constitutional hardwiring, how “independent” are regulators set up under laws passed by parliament? The answer is that it depends on the terms of the law setting up the regulator. Following steps must be ensured:

– Fair contract terms for these agencies under their governing law

– Aligning the incentives of the persons heading the regulatory agencies with public interest and

– Requiring them to consistently explain their actions to the public. Transparency of conduct is one of the most effective ways of incentivising the agency to act in the public interest. For instance: Provisions built into the Reserve Bank of India Act in 2015, require the regular publication of the minutes of the monetary policy committee’s meetings. This is a powerful provision that simultaneously secures independence and accountability, as it would be hard to explain decisions and votes that do not align with public interest.

Source: This post is based on the article “Regulators don’t need constitutional status” published in Business Standard on 12th May 22.