Vinayak Chatterjee: The horse before the cart, please

Independent regulators are a necessary precursor to reviving PPP. The NDA govt seems serious about making progress in this regard

Manmohan Singh, in unusual breaks from his usual reticence, was quite communicative in expounding his earnest desire to see "independent regulation" as the fulcrum that would leverage massive capital investments in India's infra sector.

Here is a flashback to the era of the United Progressive Alliance (UPA) on this matter:

August 24, 2004: Soon after the UPA government was sworn in, the Prime Minister announced a slew of measures including "revamping the regulatory framework". He talked about "a regulatory framework that is transparent, independent, autonomous, world-class, independent of government and provides an impartial balance between public sector and private suppliers".

August 25, 2004: The Planning Commission was asked by the PM to prepare a paper on "regulatory structures" for different sectors.

August 31, 2004: In an interview, Montek Singh Ahluwalia said: "We want to do a comprehensive review of the regulatory structure for each of the major infrastructure areas where private-public partnership (PPP) is to be encouraged. We will first lay down the general principles that the regulatory structure must meet, and then review each sector and indicate what the gaps are. In doing this we will consult the ministries, the regulators and private players and then make up our mind."

October 7, 2006: Prime Minister Manmohan Singh speaking at the conference on 'Building Infrastructure: Challenges and Opportunities' at Vigyan Bhawan, New Delhi, said: "All this requires the establishment of independent regulatory bodies with an appeal mechanism. These are difficult but relevant issues and we must flex our minds to arrive at arrangements that suit our requirements."

December 17, 2006: Speaking at the Golden Jubilee celebrations of the National Council of Applied Economic Research, the Prime Minister said: "We have made a clear national commitment to encourage public-private sector partnership in our infrastructure sector. Such investments will only materialise if there is confidence in the independence and stability of the regulatory regime; we have made a start in this direction, but establishing a credible regulatory culture will take more effort and time."

Three years later, in April 2009, the Planning Commission produced the much-awaited Draft Regulatory Reform Bill and put it in the public domain for debate and discussion. Its preface highlighted the five broad underpinnings of the exercise:

One, it underscored the need to establish a level playing field wherever the industry structure was amenable to competition; and sound regulatory principles and practices where monopoly services were to be regulated.

Two, it enunciated the principle of separation of powers among the three branches of government, which would require rule-making and enforcement functions to be separated from judicial functions - which should be vested in appellate tribunals.

Three, it sought to secure democratic accountability whereby the regulator should be directly responsible to the legislature and to the people at large.

Four, it argued for a fair and transparent process for selection of regulators, which would need to be reinforced through statutory provisions with a view to ensuring that the regulatory system remains insulated from interference and capture.

Five, it suggested an institutional framework for regulatory commissions, their role and functions, and interface protocols with the government, investors and consumers.

The draft bill also identified the sectors to which it should be applicable viz electricity, oil, gas and coal, telecommunications and internet, broadcasting and cable TV, posts, airports, ports and inland waterways, railways, mass rapid transportation systems, highways, water supply and sanitation.

Between 2009 and the exit of the UPA in 2014, clearly not much happened to get this draft bill introduced, debated and enacted in Parliament. The issue, however, kept regularly popping up in discussions on ports, electricity, rail, coal and transport sectors, including the Rakesh Mohan Committee's epochal India Transport Report in early 2014 and the more recent Dr Bibek Debroy Committee on Railway Reform. It is also hoped that the Kelkar Committee on PPP Revival would emphatically underscore this requirement.

Not surprisingly, the lack of attention and political will on independent regulation has turned out to be an extremely serious lapse in the development of the infrastructure sector. It can well be argued that the series of scams, cronyism, collapse of infra investments in general, and PPP in particular, could well have been avoided had the UPA establishment given the matter the seriousness and focus it deserved.

Thankfully, the Bharatiya Janata Party election manifesto took a clear position on giving greater autonomy to regulators; and after settling down, the National Democratic Alliance (NDA) government has turned its attention to this critical aspect of infrastructure governance. It has asked the NITI Aayog to produce its considered version of a Regulatory Reforms Bill. This follows Finance Minister Arun Jaitley's announcement in the last Union Budget of taking the required regulatory reform steps.

After more than a decade, this crucial framework for public and private investments in the infrastructure sector is finally being addressed once again, and clearly needs to be fast-tracked.

Vinayak Chatterjee is the chairman of Feedback Infra. vinayak.chatterjee@feedbackinfra.com;
Twitter: @Infra_VinayakCh