Who will regulate the regulators?

Source- The post is based on the article “Who will regulate the regulators?” published in “The Indian Express” on 12th April 2023.

Syllabus: GS2- Statutory, Regulatory and various Quasi-judicial Bodies

Relevance– Issues related to governing board of regulators

News– The establishment of statutory regulators constitutes one of the most significant governance reforms of the last century. The Governance of these agencies centers around their governing boards (GB).

What are the issues with the governance of regulators in India?

Structure of the board– The law creates a board governed by a board, an authority by an authority, a council by a council, a commission by a commission. The superintendence, direction, and management of the affairs of this board vests in a board of members.

The former board is an entity, while the latter is its governing body. Most statutes do not distinguish between the two. It leads to mix-up or reversal of roles.

Independence of the board– It is difficult for an entity to take decisions about itself with complete objectivity or hold itself accountable for performance. So, decisions about a company are placed with the board of directors.

The governing board’s primary responsibility is to hold the management accountable. It may be hard for a governing board to hold the management accountable if its members are only managers.

Nominees in the board– the government has a few official nominees on the GBs of regulators. The views of such nominees carry disproportionately more weight in the decision-making process.

The government is often a market participant and subjected to pressures from various interest groups. It may not always be possible for the official nominee to take an objective position in all matters coming up before the GB.

Professionalism of the board– The independence of a regulator depends on the professional strength of the leaders. The whole-time members should be able to handle the influence of interest groups and the pressures of fear and favor. A term of 3-5 years for these positions comes in the way of such strength.

An individual with demonstrated capability would not join a regulator for a 3-5 year tenure. Further, tenure with the retirement age of 65 years leads to selection of individuals who have retired or are near to retirement.

A term of three years is very short for members to acquire the knowledge, expertise, and efficiency. Sixty is not an appropriate age to learn entirely new things and achieve mastery.

What are the steps required to improve the governance of regulators in India?

The GB needs to have appropriate external representation. Most statutes do not provide for this representation.

The presence of a few eminent persons in the governing board as part-time members is one of the more effective options. They are not beholden to the management.

Therefore, the number of part time members should match the number of whole-time members on the governing board. The process of selection of part time members needs to be robust and should inspire confidence.

GB should not have any nominee from the government. Ideally, a regulator may not have any nominee at all. The nominees generally have a conflict of interests. They look at every proposal that comes before the GB from the perspective of the organisations they represent.

Regulators must attract younger individuals, who have demonstrated their capability in the relevant field, for a reasonable period of service.

A regulator in India typically performs three functions, namely, quasi-legislative, executive, and quasi-judicial.

There should be a separate organisational unit responsible for each of the distinct types of functions. These units should maintain distance from one another to act as mutual checks and balances. This will address public law concerns relating to separation of powers.

The statute should mandate the GB only to perform quasi-legislative functions and to provide direction to the organisation. GB should be enabled to delegate executive and administrative tasks to different functionaries in the organisation.