L'affaire Adani and the colonial mindset in our approach to governance

All regulatory institutions should be made constitutional authorities, suggests T C A Srinivasa Raghavan

In a very precise and accurate article in these columns, Debashis Basu, who knows a thing or two about the stock market, has said the real issue in L’affaire Adani is price rigging of monumental proportions. Debashis is the founder of the online journal Moneylife. He and his wife Sucheta Dalal have exposed many scams.

The natural follow-up question to this is, where are Indian regulators when they are needed the most? This can be asked, in differing degrees, of all our regulators: Securities and Exchange Board of India (Sebi), Reserve Bank of India (RBI), Telecom Regulatory Authority of India (Trai), Insurance Regulatory and Development Authority of India (Irdai) and the rest.

Having been forced to study the subject of regulation in some detail, I think the problem ultimately lies with, and in, the colonial mindset that permeates our approach to all governance. Market governance is a subset of that.

The central tenet of this approach was, “We can’t trust the natives, can we?" It was always government vs citizens, never government for citizens, and try as they will, the politicians, who are accountable, aren’t able to rid the officer class of this attitude.

That’s why it’s the turn of the natives to now ask: “We can’t trust the government, can we?” The reason is simple: trust has to be two-way.

By government I should clarify, I mean the officialdom, not the ministry. Since 1991, when the reforms began — to misquote Churchill — never have so few betrayed the trust of the citizens as much as the regulators have. The record is utterly shameful.

Is it incompetence or knavery or ignorance or mental confusion? Personally, I think it’s the last. I fully believe that our regulators don’t know who they are supposed to serve — government or citizen.

Their first reaction is, “let’s not do something that embarrasses the government”. And there is a very good reason for this: The accepted practice of appointing former servants of the government of India to the top regulatory jobs. After 35-40 years of serving the government, these guys simply can’t do anything else.

And this leads to a paradox: the people whom the government appoints thinking they will serve it well, actually end up serving it very badly. And this is because the regulators often end up misinterpreting their jobs. They just can’t separate the small things from the big ones.

And, with a few well-known and honourable exceptions, all of them have been guilty of this error. It’s called keeping your nose clean and staying out of trouble.

The result is that the biggest problems have been created by the regulators themselves and it’s the government that has been held responsible and accountable. So many ministers have complained that they end up answering for the errors of omission of the regulators.

Clearly, we have a huge problem with both attitude and approach, which needs to be corrected. Many people think that appointing non-bureaucrats will solve the problem. That may be so but it ignores the fact that in order to regulate effectively a regulator must also know how the government functions.

Recent experiments at the RBI show that technical competence and honest intentions are necessary but not sufficient. And let’s not forget we now have a private sector person heading Sebi.

In the final analysis it boils down to the source of regulatory authority: Government or Constitution. It’s no coincidence that the regulatory institutions that derive their authority from the Constitution generally do a better job for the citizens than the ones that don’t. This can be easily verified.

Hence my oft-repeated suggestion: Make all regulatory institutions constitutional authorities. Remember T N Seshan who, while in service, was a loyal servant of the government, but the moment he became chief election commissioner, he ruthlessly sorted out the political parties. The office changes his attitude and approach.