Economic growth may come at a premium now, optimise rather than maximize oversight: CEA to regulators

Nageswaran’s remarks come after the former Revenue Secretary Sanjay Malhotra, now the Reserve Bank of India (RBI) Governor, cautioned against the overreach of tax officers, asking them to prioritise economic interests over revenue targets.

“We are here not only for revenue but also for the whole economy of the country. So, if in the process of garnering some small revenue, we are hurting the whole industry, or the economy of the county, it is certainly not the intent. Revenue comes in only when there is some income, therefore, we have to be very cautious so that we do not, as they say, kill the golden goose,” he said last week at an event organised by the Directorate of Revenue Intelligence (DRI).

Highlighting the need for greater transparency, Nageswaran stressed that regulators must justify their actions with clear goals and timelines. “The same principle of transparency and social costs and benefits that we want to apply to regulated entities should also apply to the regulators themselves,” he said.

Nageswaran outlined a framework for regulatory accountability, including information sharing on why a regulation is proposed, the data backing it, the objectives it seeks to achieve, and criteria for its eventual repeal. “There has to be accountability on the part of the regulator and they have to be conscious of the fact that they represent unelected power,” he said, adding that regulators must self-impose checks to wield power responsibly.

Drawing a distinction between financial and non-financial sectors, Nageswaran argued that regulatory approaches must differ. In non-financial sectors, except for natural monopolies and utilities, he argued competition can often serve as an alternative to regulation. “You can expect competition to take care of much of the roles that regulators are expected to perform, so as long as you create a competitive environment as close to the theoretical perfect competition,” he said.

In financial sectors, Nageswaran said regulators have a tendency to lean towards “excessive regulation” because the effects of a problem would be systemic and not sectoral. “And two, when things go wrong, it is the state that is expected to bail out the overall economy. If I am going to be asked to pitch in the resources required to set the problem right, then naturally I have to have a say in making sure how that system is run as well,” he said.

Nageswaran also advocated for a balanced regulatory approach towards cryptocurrency and online gaming. “We are a low-income country and we have extensive amount of financial illiteracy, which is true in developed countries as well. So, in that situation, how do we distinguish between not standing in the way of moonshots and in which sectors do we have to be more conscious of social costs and benefits, whether it is crypto, bitcoins, online gaming, etc.,” he said.