Arming the guards

As Indias economy gets ever more complex,and as its private sector increases in scale and ambition,it becomes correspondingly important to get regulation right. Given the fact that we have come late to reform and private sector-led growth,we can learn from the regulatory experience of other countries,avoiding the old trap in which regulators are always a step behind law-breakers. That requires us to get serious about insulating regulation from political interference. Regulation isnt about the government of the day meddling in private sector decisions: it is about an independent authority,with expertise,that lays out the parameters within which the market will work its magic.

The governments move,as reported in The Financial Express,to introduce uniformity to the tenure of the heads of currently existing regulatory bodies,is thus a step in the right direction. What this will do is increase the term of those regulators who have just three years in office,to five. Thats in advance of the appointment of new people to head two of the most important regulatory agencies: both the head of the Securities and Exchange Board of India and the RBI governor will be replaced next year. But it doesnt go far enough. Indeed,it doesnt even begin to address the various inconsistencies in our regulatory structure. Who should select the regulators,for example? Is it just bureaucrats at the ministry in charge? Or,as in the case of the Competition Commission,should the Chief Justice of India be involved? How can they be removed is an inquiry essential,and if so,should it be judicial in nature?

What becomes clear is that we have not even begun to think through what a complete and consistent regulatory structure would look like. It may have been built up ad hoc but allowing it to remain so misses the advantages that come from having a substantial set of examples to learn from. And allowing regulators to remain appointees of,and subservient to,the government of the day only perpetuates the states interference in the economy,and creates conditions that arent far from crony capitalism. In some sectors,regulators are routinely ignored: the telecom regulator has had to complain that Telecom Minister A. Raja has distorted its recommendations. And some sectors are not being regulated at all: the dynamic road sector,for example,is crying out for proper supervision. This is one of the big ideas for our time,and one the prime minister,a former regulator himself,could well make his own.