2012 showed that the government is not yet ready to allow independent regulators full functional autonomy
Looking back, it is difficult to say what triggered this battle and who was responsible for it. In 2012, which will bid us goodbye in a few days, the number of battles the Union government had with its regulators was on the rise, with no sign of any resolution for any one of them yet. Was it the government’s desire to dictate terms to the regulators and restrict their scope of operations, or did the regulators overreach themselves by trying to reinterpret the law, instead of simply implementing it?
While the debate will go on, the list of government-regulator battles is a long one, and recounting the way each of them surfaced will be a lesson in itself. The most storied battle, of course, is the one between the government and the Comptroller and Auditor General (CAG), a constitutional body appointed to audit the government’s finances and programmes.
With CAG, reinvigorated under the leadership of Vinod Rai, coming out with reports on the huge loss the telecom ministry had incurred on the way it allotted 2G spectrum to telecom companies, the government came under attack. Even as the then telecom minister A Raja and several senior executives of telecom companies had to go to jail on charges of committing irregularities, the government countered the CAG report by questioning the methods used to calculate the loss figure. For the government, challenging those figures was an unusual exercise — a unique one in independent India, where a constitutional body’s assertions were being challenged outside Parliament by ministers of the Union government.
There were also suggestions from the government that CAG may have exceeded its brief by questioning government policy, whereas it was expected to only evaluate whether there were deviations or irregularities in the way a government-approved policy was implemented. It was an uneven battle, since CAG could not come out directly in its defence, although its side of the story did come out thanks to the media’s sustained coverage of issues highlighted in those reports.
Worse was to follow. A suggestion was made in government circles to have a three-member CAG, on the lines the Election Commissioner’s Office had been reconstituted some years ago. The purpose of the idea was obvious. A three-member CAG would be more manageable than a CAG led by an all-powerful head. However, the government has subsequently clarified that it was not pursuing the idea. Nevertheless, nobody can say with certainty that the government’s strained relations with CAG are over.
Yes, Rai is due to retire early next year but who knows the next incumbent, too, could toe the same independent line that he had followed. If that happens, the battle between the government and CAG may continue but governance would hardly suffer. On the contrary, there is every reason to believe that governance would improve with a more alert CAG keeping a tight check on how the government spends its resources and implements programmes.
The relationship between the finance ministry and the banking regulator, the Reserve Bank of India (RBI), has probably been as bitter and strained as the one between the government and CAG. Unlike CAG, RBI is not a constitutional body but it enjoys a special position among all financial sector regulators and, apart from regulating banks, it is also the monetary policy authority. Yet, the finance ministry’s treatment of RBI has often given the impression that the former has little respect for the latter’s independent status. It began with the idea of setting up a new body called the Financial Stability and Development Council, which was to be chaired by the finance minister, and the RBI governor was to head only one of the council’s sub-committees. The RBI management made no secret of its disapproval of the idea but this made no impact on the government and the new arrangement has been put in place.
Even in respect of its role of overseeing the conduct of monetary policy, the finance ministry has shown scant regard for the central bank’s autonomy. RBI has been correctly arguing that the monetary policy initiatives to revive investment through a cut in interest rates can take place only after the government, as the fiscal policy authority, reined in its expenditure by curtailing its runaway fiscal deficit. Unmoved by such suggestions, however, the government has been insisting on a cut in interest rates, throwing to winds the principle of maintaining the central bank’s autonomy with regard to monetary policy matters.
Worse, the finance ministry put pressure on RBI to issue licences for new banks, even though the latter had argued that it would move forward in this area after it was empowered to supersede banking boards through banking law changes. The regulator’s cautious approach may have been seen as tinkering with the government’s right to frame policy, but its caution on implementing such a sensitive policy can neither be questioned nor its importance underestimated.
Even in the insurance sector, the finance ministry has ridden roughshod over the regulator’s concerns over allowing the state-owned Life Insurance Corporation to invest up to 30 per cent of its premium income in equities, while all other insurance players have to comply with a tougher norm of restricting equity investments to 10 per cent. The Insurance Regulatory Development Authority has opposed the idea but the finance ministry has gone ahead with its decision.
The list of such government-regulator skirmishes can be much longer. But the broad picture that emerges from 2012 is that the government may have allowed several sectors to be regulated by independent bodies, but it has not yet reconciled to the idea of giving up control and granting these regulators the functional autonomy that they need. Till that mindset changes, more battles between the government and its regulators cannot be ruled out in 2013.
The market continued to mark time as the last settlement of 2012 passed by. There was negligible change in net index levels. Most traders are ...