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Thursday, 28 October 2010 00:00
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Genuine autonomy for regulators is still over the horizon

The biggest change suggested is that regulators be given licensing powers subject to the overall framework laid out by the ministry. Imagine a telecom ministry, and this is just one example, where the ministry is not in charge of giving out licenses, but a professional body is

An independent aviation regulator to replace the Directorate General of Civil Aviation that currently reports to the aviation ministry, and which can even act as an arbiter on disputes over airfare is in the works, the head of the DGCA announced a few days ago. A few months prior to this, almost three years after the Petroleum and Natural Gas Regulatory Board (PNGRB) came into being, the government finally notified the critical Section 16 which allows the board to license gas pipelines and city gas networks — in the absence of this critical section, it was virtually toothless and found its actions being successfully challenged in the high court. The selection committee

for choosing the head of the Competition Commission of India (CCI) is headed by none other than the Chief Justice of India. And, as reported two days ago, there is a move to give a uniform tenure to all regulators.

Is the government of India finally changing its spots, and allowing regulators to be genuinely autonomous?

If past is precedent, the government has a long way to go, and there are enough instances in even the recent past to show the government has no intentions of really letting go. Around the same time the government was making amends in the PNGRB case, Delhi Chief Minister Sheila Dikshit was waging a battle, successfully, with the electricity regulator who wanted to reduce tariffs for power distribution companies given that electricity theft levels had come down — Dikshit used a special power the government has to issue directives to any regulator in case of “policy” matters.

While the critical Section 16 of the PNGRB Act has been notified, three years after the amended Competition Commission Act was passed (the original act was passed in 2002), the government is still to notify the critical Sections 5 and 6 and these prevent the CCI from examining whether mergers and acquisitions should be allowed — in the US and in Europe, for example, no M&As can take place without the authorisation of competition commissions. The PNGRB can now issue authorisations for pipelines and city gas projects but it still can’t regulate (as in ensure there is no cartelisation) prices of various fuels since the government hasn’t notified the relevant list of fuels.

Nor is the problem restricted to notifying vital sections of various regulatory acts. The problem really begins from the fact that, with the exception of S.L. Rao, most other regulators are bureaucrats; and almost all selections are done by the government of the day. The only partial exception is the CCI where the CJI heads the selection panel — in the case of the CVC, which is a watchdog body and not a regulator, the leader of the opposition was part of the selection panel but the final selection took place with a dissent note from her. In the case of the

TDSAT some years ago, the telecom ministry recommended the name of a former BSNL chief as a member — the chief justice rejected this on the grounds that 90 per cent of the cases in the TDSAT were against BSNL but the government sent it back to him for reconsidering. As a result, the telecom appellate tribunal stopped functioning for

several weeks as it didn’t have the required bench strength. Which is why, at a seminar some months ago, Planning Commission Deputy Chairman Montek Singh Ahluwalia created a stir when he said that serving/ former bureaucrats shouldn’t get to become regulators (more on the Planning Commission suggestions for regulatory reform later).

So the government has the power to choose a regulator, it has the power to ensure its candidate is chosen despite opposition (CVC and TDSAT), it has the power to issue directions to ensure the regulator does what it wants (Sheila Dikshit), and it even has the power to dismiss regulators. No regulator, apart from the poor Justice Sodhi who headed the original TRAI, has ever been removed (Sodhi’s TRAI was summarily dissolved when it acted on powers the act allowed it but the government didn’t like), but the threat of dismissal is good enough. The rules are selective here. In the case of the TRAI and the

appellate TDSAT, no dismissals can take place unless the case is referred to the Supreme Court which then examines the matter. This is what happens in the case of the CCI as well. But in the case of the PNGRB and even the new airport regulator, a dismissal can take place after an internal government inquiry — while PNGRB officials insist dismissing them is not easy, it is curious why the PNGRB Act or the Airports Economic Regulatory Authority of India Act don’t talk of the reference to the Supreme Court.

This is where the Planning Commission’s draft regulatory body paper comes in. Apart from the issue of serving/ former

bureaucrats not getting to head or be members of regulatory bodies, the biggest change suggested is that regulators be given licensing powers subject to the overall framework laid out by the ministry. Imagine a telecom ministry, and this is just one example, where the ministry is not in charge of giving out licences, but a professional body is. Where’s that 2G scam? A regulatory body that reports directly to Parliament, sets out its goals at the beginning of the year and then files a report on what it achieved, a body whose actions (as is the case today) can be appealed at the appellate tribunal and then the Supreme Court.

None of this is to suggest the regulatory system is not working. It clearly is, and even when firms don’t agree with what the regulator says, just the sheer fact of a reasoned judgment allows them to go in appeal — you can’t appeal a government decision in a court but you can appeal a regulator’s. MCX-SX, to cite a recent example, is upset with Sebi’s ruling on it, but it is going to use the ruling to go to court. But thanks to what we’ve just spoken about, the regulatory system functions as an adjunct of the government often enough. Changing that is what the Planning Commission is suggesting. And while there is some discussion on uniform tenure for all regulators, there is none on the real issues involved.



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