Row over selection

Need to institutionalise norms for appointing regulators

A recent public interest litigation over the procedures followed in the appointment of the chairman of the Securities and Exchange Board of India (Sebi), U K Sinha, raises a broad range of public issues relating to the manner in which the government goes about selecting regulators for various markets and industries. The government has now admitted that until at least 2008, it did not have a fixed procedure for selecting who would head the capital markets regulator. In 2008, a search committee was appointed to find the next Sebi chairman. The committee shortlisted C B Bhave, who was then with the National Securities Depository Limited, and Mr Sinha; the former was appointed. Mr Bhave was refused an extension in February 2011, and Mr Sinha took over. The government’s response to the public interest litigation does not throw much light on how the appointment was made. It also says “numerous complaints” were received against two other whole-time Sebi members, whose terms were not extended in 2011.

 

These developments are likely to be interpreted as another round in a long-running battle among ministers over who is responsible for decisions that may or may not have gone wrong. Be that as it may, the government’s response to the public interest litigation points to a lack of transparency in Sebi appointments. That is disturbing. Apart from the issue of technical competence, a statutory independent regulator is supposed to act without bias to ensure a level playing field and smooth functioning in the domain it oversees. If the members and chairperson are appointed in an opaque, ad hoc fashion, the functioning can obviously be adversely influenced. In any open economy, the need for independent regulators is obvious. The economic liberalisation model posits that the government withdraw from commercial operations and act as an enabler, while a statutory body is put in charge to balance the interests of all stakeholders. The accent must be on the independence of any such regulatory authority. It should be empowered to pass orders with teeth. It should also, when needed, be prepared to play an adversarial role vis-a-vis the government. This is especially important in an economy transiting from monopolistic government control. In the absence of an independent, empowered authority, there is a temptation for the government, which controls a major market share in many sectors through its public sector undertakings, to ride roughshod over competition.

Since 1991, when the economy opened up, the government has set up several independent regulators. It is true that the members of such institutions are usually drawn from the ranks of retired bureaucrats or judicial officers, but in respect of many regulatory bodies, the procedures for selecting the incumbent for the top job are not outlined so clearly as to obviate such controversies. It is vital that all appointments to such authorities should be transparent and adhere to fixed norms. This is as important for Sebi, given its crucial mandate, as for all other regulators. It is up to the Supreme Court to decide on the specific merits of the public interest litigation. But it raises issues that deserve ventilation and it would be in the national interest if it triggers further debate and a commitment to institutionalising selection procedures for independent bodies.