Regulatory capture of a different kind

Synopsis: Three-fourths of India’s top regulators are retired government officers. This trend must change.

Introduction

Regulatory bodies are government bodies set up to supervise different sectors of the economy. While most of the regulatory bodies are working independently, there are some that still operating as an extension of the government, like the Regulator for civil aviation.

Their work is to protect the consumer’s interest, frame the policies and ensure that both the public and private sector players followed those policies. But there are certain problems associated with India’s regulatory framework.

What is the composition of regulatory bodies?

Almost three-fourths of these regulatory institutions are headed by retired government officers. The majority is from Indian Administrative Service, Indian Audits and Accounts Service, Indian Railway Service or the Indian Cost Account Service.

What are the problems associated with regulatory bodies?

Selection of non-experts: The selection of non-experts to lead the regulatory bodies may bring a lack of efficiency in the functioning of such bodies.

Bureaucracy and political nexus: A regulator’s independence can be compromised if that person has served the government in key positions before being appointed. So, senior government officials joining regulatory bodies as their heads could give rise to a nexus, thereby defeating the purpose behind regulation.

Conflict of interest: A professional regulator, with relevant experience of the industry, is a boon for regulation. But there is a serious problem of the preponderance of senior government officials playing the role of regulators. There can be conflicts of interest between professional regulators and government officials.

What should the government do?

The government has begun the process of monetization of government assets. This makes it even more important for the government to reduce the stranglehold of civil servants on regulatory bodies. This is because a regulator, who is friendly to the government, may undermine regulation at the cost of consumers’ interest and may even perpetuate government interference in various sectors.

This is counter-productive for an economy that is trying to grow fast, improve its competitiveness and ease of doing business. Thus, the government should look at an industrial model which is aimed at creating professionals who can become regulators in the future.

Source: This post is based on the article “Regulatory capture of a different kind” published in the Business Standard on 27th October 2021.