Why did regulation permit such an imbalance in the first place? A regulation can be legal, complied with, and profitable for the industry it governs, and yet fail the public interest. The problem runs through India’s economic history, from industrial licensing and resource allocation to digital lending, corporate insolvency and the weakening of transparency institutions. There are three distinct ways in which the public interest gets displaced by private interests: Bad policy design, capture during implementation, and the capture or weakening of institutions meant to protect citizens.
1. When policy itself is the problem
Like insurance, digital lending offers a more immediate example of regulation failing consumers. Moneylife Foundation’s study Digital Credit Without Limits examined 110 lending apps and anonymised cases arising from its credit-counselling work. It found borrowers taking multiple loans in quick succession, sometimes to repay earlier loans. In one case, a contract worker earning ₹12,000 a month had six app loans with combined monthly instalments of ₹46,700. Some short-tenure loans carried charges equivalent to 1 per cent a day, or 365 per cent a year before compounding, with processing fees deducted upfront. These cases expose a regulatory blind spot. A lender may assess an individual loan in isolation and still leave a borrower dangerously overextended across several platforms. The Reserve Bank of India, like Irdai, should have stepped in well before our study, but it has not done so, in any meaningful way, even now. Examples of insurance and digital lending reveal the same asymmetry. Organised lenders, distributors and financial intermediaries have the resources to shape business models and influence regulators. Individual policyholders and borrowers are scattered, poorly informed, and often unable to challenge the terms imposed on them.
2. When implementation captures a good policy
The second form is more difficult to detect because while the original policy may be sensible, its implementation is distorted by discretion, collusion, weak enforcement, or the ability of powerful participants to manipulate the rules. The licence raj was one such example. The allocation of coal blocks and 2G spectrum in the early 2010s also created opportunities for enormous private gains. Exploitation of urban land is another powerful example. Why is housing so expensive for new buyers and new businesses in Indian cities? Why are there so few public open spaces, why are services such as restaurants so expensive, and why are employees forced to commute such long distances? It is the implementation of land-use regulations in ways that favour builders and politicians.
3. When institutions meant to protect citizens are compromised
The policy objective of public-sector banks was to finance economic development and expand access to credit. But corrupt lending, deliberately weak credit appraisal, repeated loan restructuring, and ever-greening allowed an estimated ₹20 trillion to turn bad. Across these examples, the pattern is the same: A public resource or institution is meant to serve a collective purpose, but powerful participants find ways to extract private benefits. The costs are dispersed among taxpayers, consumers, depositors and citizens who have little ability to challenge the arrangements.
In the third form of undermining the public interest, the original policy and institutional design are sound, but the institution itself is progressively weakened, politicised or made ineffective. The Right to Information Act (RTI) gave citizens the legal right to obtain information from public authorities. It was designed to reduce information asymmetry between the state and the citizen, expose administrative wrongdoing, and make government answerable. But a right on paper is only as strong as the institutions that enforce it. Vacancies, delays, mounting pendency, questions over the independence of information commissioners and restrictions on disclosure can discourage citizens from using RTI.
The Securities and Exchange Board of India (Sebi) was created in the public interest — to protect investors, regulate securities markets, and prevent abuse. But the 2008 conflict-of-interest code applicable to Sebi’s brass was voluntary, and it lacked legal enforceability and remained substantially unchanged for 16 years, even as Sebi imposed extremely burdensome compliance requirements on companies and intermediaries. It still remains voluntary, contrary to the recommendations of a high-powered committee.
The state’s role when formulating public policy is to ensure that economic success comes from creating value and not through privileged access to public resources, manipulating rules, or weakening institutions. Hence, a policy should be judged by whether the public gains from its actual implementation, not by the few who benefit from its announcement. The Irdai proposal is a test of whether the discussion paper can steer the incentives back from private capture to the public interest. But why should this depend on the good sense of one new chairman of one institution? If India wants to be seen as a developed nation in two decades, the public interest needs to be the governing philosophy of policymaking, built into the design, implementation and accountability of every institution.
The writer is cofounder of www.moneylife.in and a trustee of the Moneylife Foundation; @Moneylifers
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