Regulatory Governance in India- Emerging Dimensions
Introduction
Today we are living in an era of the ‘regulatory state’. The expressions ‘regulation’, ‘regulatory governance’ and ‘regulatory institutions’ have become the buzzwords of governance and are spread across social systems as well as state organisations and government strategies. Political preference in the last few decades has emphasised on private sector autonomy and market solutions to the problems and difficulties of all descriptions. Since 1980s major changes have occurred in the world politics and the influence of market is growing fast. Under the impact and influence of liberalization, privatisation and globalisation, deregulation and contracting out of governmental functions, services and responsibilities have reverberated around the world. Since 1991 these changes are having vast impact on our country also under the garb of 'economic liberalisation’. The impact of market ideology on government are broadly described as the new way of governance, government by the market, reinventing government, new public management, sharing power, slimming of state, the hollowing out of the state, really reinventing government, downsizing, right sizing etc. There has been a shift in the perceived role of government from acting as the principal vehicle for socio-economic development to guiding and facilitating that development. Accordingly, while policy formulation remains one of the main functions of government, the role of the government in implementing policy decisions is changing.
Main thrust of the changes introduced under the impact of liberalization, privatisation and globalisation on the system and sub-systems of governance has been seen from the perspective of economy, efficiency, effectiveness, ethics and equity. There is emergence of new phase in governance characterized as the phase of deregulation and re-regulation of socio-economic activities in the developed as well as developing societies. Most of the countries have gone further in the direction of a customer-contractor structure, with diminishing core ministries, large amount of privatisation, creation of executive agencies and contracting with the private sector under the influence of the market ideology. This has thrown open a large number of areas to market forces to transact heretofore governmental business. The language of regulation has penetrated not only diverse policy domains, but has also become part of legal systems. ‘Regulatory agencies’ as well as ‘better regulation’ or ‘high quality regulation’ initiatives have become part of present administrative landscape. The concept of regulation has evolved. The area is no longer confined to the examination of dedicated ‘command’ regimes designed to offer continuing and direct control over an area of economic life. In contrast to this ‘fixed’ view, the practice and study of regulation has increasingly moved towards more flexible understandings.
What we see is not that total retreat of the State, but rather the substitution of one form of involvement by the state in the economy for another. With privatisation and liberalisation an array of regulatory agencies have spawned which carry with them rule-making and rate-making powers, grievance redressal powers in addition to their general powers of promoting competition and efficiency. The state is performing the functions of supervision and monitoring, as the process of deregulation, required to be regulated with more care and caution. Access to justice and resolution of grievances have become an inherent feature of regulation. In Indian context the increased role played by the Consumer Commissions in the area of improving the quality and standards of goods and services may be seen in this perspective.
Regulation: Conceptual Consideration
The term “regulation” refers to various instruments by which governments impose requirements on enterprises and citizens. It thus includes embracing laws, formal and informal orders, administrative guidance and subordinate rules issued by all levels of government, as well as rules issued by non-governmental or professional self-regulatory bodies to which governments have delegated regulatory powers. Meier defined regulation as “any attempt by the government to control the behaviour of citizens, corporations, or sub governments.” OECD has defined regulation as “the diverse set of instruments by which governments set requirements on enterprises and citizens.” Baldwin and Cave suggest that governments regulate to address a number of issues and concerns which include monopolies among utilities, externalities like pollution, information inadequacies, continuity and availability of services, anti-competitive behaviour and predatory pricing, public goods and moral hazards, unequal bargaining power, scarcity and rationing, distributional justice and social policy, etc. Regulation can pursue different types of objectives. Economic regulation, social regulation and administrative regulation are among the three main categories of government intervention which may have a bearing on the market.
Regulations can generally be categorized in three categories -economic regulation, social regulation and administrative regulation. The economic regulation focuses on the direct government intervention in corporations and market decisions such as pricing, competition, market entry or exit, etc. Social regulations are related to government protection of citizen and social values such as health, safety, housing, labour etc. Social regulations aim at protecting new values and addressing concerns and problems resulting from modern industrial society. The third type of regulation, administrative regulation, relates to government formalities and paperwork. These regulations have increased complexity of public programme operation and requirements of financial and legal accountability.
Development of Regulatory regime
In the present regulatory state, there is a distinctive mode of governance oriented towards the promulgation of rules that involves more or less systematic oversight of compliance with those rules by public agencies operating at arm’s length from those they are overseeing. Independent regulatory agencies’ oversight of businesses has become an essential part of regulatory state governance. Opposed to the old-style regulation, the independent regulatory commissions which came into existence in mid- 1990s wield regulatory powers with legislative, executive and judicial jurisdiction and are termed as quasi-judicial authorities.
However, the shift towards arm’s-length oversight of compliance with rules extends well beyond independent regulators of business. It also involves separation and oversight of delivery functions within the public sector. The regulatory mode of governance has been reflected in the privatisation and corporatisation of services, which at one time were operated by government ministries. These are now subject to regulatory oversight, whether the services are offered by private companies, or by public bodies. The deployment of regulatory state mechanisms is not restricted to economic sectors, but also includes the redistributive functions of the state. Thus a key change associated with the neoliberal reforms of the new regulatory state has been the privatisation of key elements of public service delivery and the establishment of new regulatory mechanisms to oversee them. We see also, frequently, the recasting of the citizen as consumer.
Three decades of regulatory reform suggest that regulation is not only necessary for the functioning of a market economy but that regulatory oversight remains essential in the running of such public services, in particular in those aspects that reflect genuine natural monopoly elements, such as networks. A growing importance has, moreover, become attached to quality and direction in regulatory activities – as can be seen in the growth of the objectives that have been imposed on regulatory agencies. The initial emphasis on economic regulation that was supposed to ‘wither away;’ over time has been replaced by a realisation of the continued need for oversight and the addition of environmental and sustainability objectives to the earlier primarily economic and social objectives.
Present Regulatory Regime in India
Indian economy has always been amongst the most regulated economies. There have been in place endless restrictions and regulations dealing with industrial licensing, import licensing, export assistance, size restrictions under Monopolies and Restrictive Trade Practices Act, storage restrictions under Essential Commodities Act, restrictions on interstate movement of food products and some cash crops, interstate permits for vehicle movement. At the operating level, factories have well over 30 inspectors visiting them every month. There are numerous regulations which affect individual citizen particularly the trader and the manufacturer, violation of which is subject to interpretation and punishment.
Indian experience with regulation is not new. Till recently all sectors of the economy were regulated. In the infrastructure sectors, the governments or their instrumentalities owned, operated and regulated services. In power sector, central government, Central Electricity Authority, State Governments and State Electricity Boards regulated the sector under the Electricity (Supply) Act, 1948, and Indian Electricity Act, 1910. Similarly, the Department of Telecommunications regulated the telecom sector under the Indian Wireless Telegraphic Act, 1933, and the Indian Telegraphic Act, 1885. Besides sector specific regulators, there were other regulators created under various other Acts in relation to environment, safety, labour etc. The deep rooted belief at that time was that only public sector can provide the basic infrastructure facilities. Therefore, the entry of the private sector was strictly regulated if not altogether prevented. The government acted as the policy maker, provider of services, entrepreneur, protector of public interest and arbiter. In this form of set up, efficiency, productivity and consumer interests were not the concerns. Further, it was believed that accountability to the government and through the government to the Parliament and legislature was sufficient to ensure accountability and transparency and disclosure to public was not necessary. This form of regulation lead to unlimited discretionary power to the service provider, inefficiency, poor quality of service, lack of transparency and accountability, negligible flow of private capital, financial mismanagement, and lack of protection of consumers’ interests.
Liberalisation, Privatisation and Globalisation (LPG) lead to reforms and liberalization of Indian economy in 1990s with service sectors like power, telecom being gradually thrown open to private investment and competition. Infrastructure has been recognized as a major constraint on economic development and growth, requiring vast investments. The government does not have such huge funds for investment. The entry of private investment – both domestic and foreign is thus inevitable and most essential in addition to public investment. The investors need a regulatory environment which is independent, transparent, consistent and predictable. Therefore, independent regulatory mechanisms were mooted as the solution and such independent regulators were created for telecom, electricity, insurance, port sectors.
Telecom sector was opened up in 1991 with private investment being permitted in manufacture of telephone equipment and value added services were allowed private investment in 1992. The National Telecom Policy in 1994 reiterated the government’s commitment to further liberalise the sector. In power sector, guidelines of 1991 allowed private sector entry in the generation of power, followed by several initiatives to attract and facilitate private investment in power sector. Private sector participation by way of leasing port facilities was permitted in 1994 and investment for creation of new facilities in the existing ports or establishing new ports in 1996. In India regulation of power and telecom sectors was not contemplated or provided for as a part of initial reform process. In these two sectors the regulators came much later, whereas in case of port sector the decision to set up tariff regulatory authority was announced as part of policy statement in 1996. In the insurance sector the regulatory authority has preceded the opening of the sector. Thus, progressively there is realization in the government that reforms cannot be put into force without independent regulation and for that a regulatory authority should be set up.
At present, almost all the important sectors of economy are being regulated through independent regulator. Financial sector is one of the most regulated sector of Indian economy. Security and Exchange Board of India, established in 1988, was given statutory status in 1992 to protect investors and develop the domestic stock market the Insurance Regulatory and Development Authority (IRDA) was constituted under IRDAI Act, 2020 for the development of the insurance sector and to protect the interest of the policy holders. Banking sector regulator, Reserve Bank of India performs the core functions of banking supervision, regulation, and providing support in case of a crisis. The Bureau of Indian Standards is the standard setting body for all the sectors with the aim of consumer protection. the Food Safety and Standards Authority of India (FSSAI), established in 2006 lays down scientific standards for articles of food and to regulate their manufacturing, storage, distribution, sale and import to ensure the availability of safe and wholesome food for consumption. Similarly, independent regulatory authorities have been set up for specific sectors.
Administrative Measures- Policy Level Reforms
Regulatory standards have never been higher in the developed countries than they are today. International standards are increasing rapidly. The number and scope of government (domestic and international) regulations have increased so rapidly in almost all OECD countries that the term “regulatory inflation” was coined by the OECD in the early 1990s And even in areas of regulatory reform, what happened was not so much a complete withdrawal of government interest in areas such as telecommunications or aviation, but rather a change in the way the public authority was used to shape these markets. Many have pointed out that‘re-regulation’ would be a more accurate term.
In the era of deregulation accompanied with ‘downsizing of government’ philosophy, popular belief is the fewer the regulations, the better it is. However, well-functioning markets need effective regulations regarding basic facets of their operation. Complexities of modern economics need a range of ‘rules’ to function properly. Many of these rules are often provided by the private sector itself. The regulations in the stock market are provided by the stock exchange itself. Similarly most of the professions impose ‘self-regulation’ on their members. Thus many markets which are appear to be regulation-free are, in fact, heavily regulated. Though many of these need not be provided by the government. However, self-regulation is also required; has ultimately to be backed by the government through legislation and other directives Therefore, deregulation should not be equated with abolition of all government regulations. Deregulation in certain areas may require increased government regulation in other areas. For example deregulation of industry and finance may require increased regulation for protection of consumers and depositors respectively. To enable utility regulators to do their jobs, structural reforms should create a potentially competitive environment in which markets and regulations can function. Independent regulators cannot succeed in the absence of broader policy and governance reforms that address half-furnished structural reforms, conflict of interests, and uncertain political commitment.
To overcome the problems of deregulation and to include other reform ideas, it is important for policymakers to develop a balanced and integrated regulatory system. There is need for the regulators to balance various interests between public and business groups as well as different concerns relating to economic and social factors. The new approach emphasizes voluntary compliance by businesses through self-regulation and incentives. The integrated regulatory management system emphasises on managing aggregate regulatory effects; upgrading effectiveness of regulatory regimes; setting frameworks to guide relevant actors; improving flexibility in regulatory regimes; implementing longer-term structural reform; developing a wider range of alternatives; improving transparency and accountability; and creating longer-term cultural change.
Impact of Privatisation and Globalisation on Governance
A fundamental question is how globalisation impacts governance? Under the impact of globalisation, governance processes are transforming in new ways. There are changing roles for the state to play incorporating new ways of market regulatory approaches to public interest ends. Three broad regulatory innovations have become part of governance signalling new transformative beginning. These are the delegation of public functions to the private sector; increasing recourse to market regulatory approaches as a substitute for command-control rules; and retention of governmental responsibility for implementation purposes, but the privatization of the procedures and structures used to implement these governmental programmes.
The application of this new rhetoric has resulted in new blends of public and private sectors at all levels of government. This also calls for redefining what is public and what is private, or at least what kinds of public functions can be fulfilled in the private sector. There is a decrease of public participation stemming from increased reliance on privatisation and the delegation of public functions to private entities. As a consequence of this market discourse has narrowed the role of public interest values, and replaces them with the rhetoric of cost-benefit analysis.
With a sharp reduction in the degree of direct governmental involvement in the economy with corporatisation and privatisation of state activities, the question arises: Will the rolling back of the state result in a rolling back of judicial review? According to Sir Ivor Richardson, what we see is not the total retreat of the state, but rather the substitution of one form of involvement by the state in the economy for another. There is a wide choice of regulatory tools. It is often overlooked that privatisation is usually accompanied by regulation.
The process of privatisation strips away most of the accountability mechanisms that operate in the public sector – Ombudsman review, freedom of information, scrutiny by the Auditor-General, ministerial responsibility. There is an accountability vacuum which the courts may be drawn into. The fundamental values of public law – openness, fairness, participation, impartiality and rationality - not only provide a yardstick against which to measure the activities of privatized enterprises with market power but should be embodied in the design of institutions and regulatory schemes at the outset.
Conclusion
Thus by virtue of moving beyond the narrow view of regulation has led to a theory of regulation with much more empirical content. The state becomes part of a network of regulation in which the tasks of regulation are redistributed in various ways among actors within the network. The regulatory reforms undertaken so far suggest that regulation is not only necessary for the functioning of a healthy market economy but that regulatory oversight remains essential in the running of such public services. A growing importance is being attached to quality and direction in regulatory activities, which becomes the basic objective and function of regulatory agencies. Over time, the early focus on economic regulation, which was meant to "wither away"—has given way to recognition of the ongoing need for oversight and the addition of sustainability and environmental goals to the original, largely social and economic ones. The effectiveness and efficacy of the new form of regulatory tools which are being adopted remains a major concern.
References
1. Peter Self, Government by the Market? London, U. S. Westview Press, 1993; see also R.A.W. Rhodes, “The Hollowing Out of the State: The Changing Nature of the Public Service in Britain”, The Political Quarterly, Vol. 65, No. 2, April-June 1994, pp. 138-54.
2. David Osborne and Ted Gaebler, Reinventing Government: How the Entrepreneurial Spirit the Public Sector from School House to State House, City Hall to Pentagon Reading, MA, Addison- Wesley, 1992; see also Ronal C. Moe, “The Reinventing Government Exercise: Misinterpreting the Problem, misjudging the Consequences” Public Administration Review, Vol. 54, no. 2, March-April, 1994, pp.111-22.
3. “The Changing Role of Government: Administrative Structure and Reforms” Proceedings of a Commonwealth Roundtable, Sydney, Australia, February 24-28, 1992, p. 20; See also Norman Lewis, “ Reviewing Change in Government, New Public Management and Next Steps”, Public Law, Spring 1994 pp. 105-13.
4. Supra n. 17.
5. Peter Self, op. cit.
6. Rhodes R. A. W. “The Hollowing Out of the State: The Changing Nature of Public Service in Britain”, The Political Quarterly, Vol. 65 No. 2, April- June, 1994 pp. 138-54.
7. Drueker, Peter, F. “Really Reinventing Government”, SPAN, December 1995, p. 11.
8. S.S.Singh & Suresh Misra, “Public Law issues in Privatisation Process”, Indian Journal of Public Administration, 1994, Vol XL, No. 2,pp. 396-410.
9. United Nations Conference on Trade and Development, Model law: the Relationship between a Competition And Regulatory Bodies, including Sectoral Regulators, TD/ B/ COM. 2/ CPL/ 23 including Corr. 118 June 2001.
10. Meier, K. J., Regulation: Politics, Bureaucracy, and Economy; St. Martin’s Press: New York, 1985; p. 1.
11. Organization for Economic Cooperation and Development (OECD), Regulatory Reform in the United States; OECD: Paris, 1999; p. 16.
12. Baldwin, R.; Cave, M. Understanding Regulation: Theory, Strategy, and Practice; Oxford University Press: New York, 1999; p. 17.
13. See OECD Regulatory Co-operation for an Independent World, OECD, Paris, 1994.
14. See Jacobs, Scott, et al “Regulatory Quality and Public Sector Reform”, in the OECD Report on Regulatory Reform: Sectoral and Thematic Studies, OECD, Paris, 1997.
15. Majone G. (ed.), Deregulation or Re-regulation, London, Pinter, 1989 , q. in C. Hood, Explaining Economic Policy Reversals, Open University Press, Buckingham, 1994, p.20.
16. Alfred C. Aman Jr, “Administrative Law for a New Century”, in Aseem Prakash & Jeffery A. Hart, (edt), Globalisation and Governance, Routledge, London & New York, pp. 268-285.
17. Richardson, Sir Ivor, “Changing Needs for Judicial Decision-Making”, Journal of Judicial Administration, 1991, 1(1), p 64.
18. McAuslan, J.P.W.B. “Public law and Public Choice”, Modern law Review, 51(6), 1988, pp. 699-700; Bayne, P., “Administrative Law and the New Managerialism in Public Administration”, Australian Law Journal, 62(10), 1988, p. 1045; Daintith, T., “The Executive Power Today: Bargaining and Economic Control” 1985, in Jeffrey Jowell & Dawn Oliver (eds.) The Changing Constitution, Oxford University Press, Oxford p.175.
19. See Prosser, Tony, Nationalised Industries and Public Control: Legal, Constitutional and Political issues 1986, chs. 1-2; Prosser Tony, “Democratisation, Accountability and institutional Design: Reflections in Public Law”, in P. McAuslan & J. McEldowney (eds) Law, Legitimacy and the Constitution, Sweet & Maxwell, London, 1985.
Governance & Polity • 1 month ago
Leave a comment
More articles from Governance & Polity
