Regulating India: The Balance of a Regulatory State How much regulation is too much regulation to tag India as a regulatory state? | Indian School of Public Policy Humane ClubMade in Humane Club
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How much regulation is too much regulation to tag India as a regulatory state?

How Much Regulation Is Too Much Regulation To Tag India As A Regulatory State 500x281

The concept of a regulatory state is still evolving. Scholars across the globe have multiple perspectives on it. Jordana and Faur (2005) have suggested three possible definitions of a regulatory state. First is the minimalist notion, which signifies that it is nothing but a subject of discussion for intellectuals to present their diverse perspectives about today’s complex institutional systems. Second is the prudent notion, which implies that modern political systems rely more on rules and standards than direct public control and intervention. Hence, in the second perspective, the emphasis is more on the instruments of regulation. For the third over-ambitious perspective, a regulatory state is where the rule-making function will gradually marginalise or replace other state functions, such as defence and taxation, among others.

The conceptual idea of the regulatory state is that a state performs functions analogically, it is steering a boat instead of rowing it. The latter function in a regulatory state is performed by civil society (Braithwaite 2000). This essentially means that the state plays the role of a guide by providing rules and regulations that give enough space for civil society to flourish within the directional guidelines of the state. However, this does not mean that the system is fixed. Instead, the dynamic nature of a regulatory state entails that the state may control or retreat from a sector entirely.

What makes up a Regulatory State?

The paradox between the two models of regulation and deregulation is interesting and reflects the fluidity of the concept of the regulatory state.

After privatisation, the essential criteria for a regulatory state are rules, regulations, and standards generally formulated and implemented at arm’s length by the government (Majone 1997). The regulatory agencies are assumed to be independent. The rationale for the nature of these agencies is to allow for an expert-dominated policy generally insulated from narrow, short-term political imperatives. The general expectation is that such regulatory agencies have considerable freedom to influence or control respective activities through autonomy to shape policy agendas, set standards, and punish non-compliance. A critical component of such autonomy is the financial autonomy such agencies enjoy.

Regulation gradually separates itself from other governance functions like service delivery and policymaking (Levi-Faur 2010). This autonomy that the field of regulation is gaining is further reinforced by the increasingly complex economic and technological processes causing far-reaching changes in the way we work. Contemporary India might need a vital criterion for such rules and regulations in the public interest to be an effective regulatory state.

What is the status of regulation in India?

India’s social, political, and economic systems are much more complex than their western counterparts. An analysis of India’s history can be helpful but not sufficient to understand the complexities of its context.

In pre-colonial India, the concept of legal regulation was not prevalent; instead, the regulatory mechanism was deeply embedded in the society to govern the territory. For instance, during the mutual rule for land regulation, the ranks of the officers in the hierarchy were determined to have possession of land impacting the social control, which facilitated compliance with a socio-psychological phobia of liability upon digression. For societal and economic control, the role of the local governance structure in regulation was the most dominant. With no formal rules, these local-level associations and religious factors had the authority to regulate the local society and economy.

In the post-colonial phase, the concept of legal regulation started seeping in a centralised and formalised manner. Indian Universities Act of 1904, for example, regulated higher education. This control, however, was never for the public interest but for the colonial interest. The control mechanisms adopted were direct and indirect appointments. There was discrimination based on race to prevent the representation of native Indians and suppress their disagreements. This form of state was less regulatory and more imperialist.

What has been India’s journey in the waters of regulation?

Since independence, the legacy of British Imperialism has continued through archaic legal laws and rigid bureaucratic structures. This, however, did not mean that there was no presence of the private sector. But, the sector was so heavily licensed and controlled that the system until the 1990s was more of a socialist state than a regulatory state. The 1991 liberalisation, privatisation and globalisation (LPG) reforms were a watershed moment in India’s political economy. The de-licensing and liberalisation of the economy paved the way for a dynamic private sector to emerge, though there were sector-wise variations.

Perhaps, the concept of the regulatory state is most clearly perceptible in the Indian context in the financial sector. Several Independent Regulatory Authorities (IRAs) were established to regulate this sector after the reforms. SEBI, established in 1988, was given statutory status in 1992 to protect investors and develop the domestic stock market. Similarly, the insurance sector was opened up for the private sector in the 1990s, and the Insurance Regulatory and Development Authority (IRDA) was constituted for the development of the insurance sector (IRDAI 2020). After 1991, RBI’s focus also shifted back to some of its core functions like banking supervision, regulation, and providing support in case of a crisis. This was recently demonstrated when the RBI took over the board of Yes Bank. The National Financial Reporting Authority was established to oversee and regulate the auditing profession independently. It has the power to recommend standards as well as enforce them.

In other sectors, the phenomenon of privatisation, a retreat of the state, and the rise of IRAs are evident. For most sectors, the Bureau of Indian Standards has set standards with the aim of consumer protection. In other sectors, regulation is being preferred over the direct presence of the state or its complete retreat. Another example is that of the Food Safety and Standards Authority of India (FSSAI), established in 2006. It has been mandated to lay down scientific standards for articles of food and to regulate their manufacturing, storage, distribution, sale and import to ensure the availability of safe and wholesome food for consumption.

Similarly, IRAs have been proposed for specific sectors. The Personal Data Protection Bill proposes setting up a Data Protection Authority (PRS 2020) to supervise the various fiduciaries in the data ecosystem. Similarly, the government has announced the establishment of the Indian National Space Promotion and Authorisation Centre (IN-SPACe), which has been envisaged both as a facilitator of increasing private participation in the space sector and as a regulator (Sinha 2020). These are just a few examples of the various regulatory/supervisory agencies established and empowered in the post-reform era.

India’s approach towards regulating digital currency in tandem with industry and academic collaboration reflects the emerging ambitions of India towards regulation. Process and stakeholder engagement inevitably play a significant role in the success or failure of the regulation.

The efficacy of regulation is also complicated because of the significant presence of state-owned enterprises in several economic sectors. In FY 2019-20 (DPE 2021), 366 Public Sector Enterprises were present in India. This makes the establishment and impartial functioning of the IRAs much more complicated. How can one be a participant and referee of the game simultaneously? It erodes public trust and confidence in regulatory bodies. In the banking sector, for example, the presence of government banks has complicated the resolution process of several NPAs. The government’s aim to boost growth led to oversized lending which has culminated in the problem of accumulated NPAs.

The retreat of the state from various sectors is also evident in India. This is important in the context of India as the country’s early economic model was state-led and leaned towards a socialist method of centralised planning. The more relevant criteria for India as a regulatory state is increasing privatisation and liberalisation of the economy. State retreat is evident because many of the hitherto nationalised sectors of the economy have been opened up for the private sector. These include power generation, banks, insurance, etc.

Privatisation has been a top priority for the government. Atma Nirbhar Bharat Abhiyaan has many provisions related to privatisation. One of the key announcements has been the privatisation of many public sector enterprises and the minimal presence of the state in a few strategic sectors (PRS 2020a). The focus on improving the Ease of Doing Business also reflects the opening up of the economy for various non-state actors and enables and facilitates their participation. Restrictions on FDI have been minimised, and attempts are being made to make compliances as business-friendly as possible.

In the Indian context, the judiciary’s role in regulation is also significant. In certain areas, the Indian judiciary has been quite active in rule-making. This has been facilitated by the independence and leeway granted to the judiciary under the Constitution. In several cases, the judiciary has formulated rules that otherwise would have been the function of the executive. The most famous case in this context is the Vishakha guidelines formulated by the Supreme Court to prevent sexual harassment of women in the workplace. Another interesting area has been that of electoral reforms. The Apex court has intervened multiple times to check the criminalization of domestic politics by mandating candidates to file their affidavits before elections.

Self-regulation is also emerging as another critical facet in the Indian regulatory landscape. This is specifically evident in the media, whose vital role in a democracy makes it a complex and crucial arena to be regulated. Around the world, self-regulation or soft regulation is the most prevalent practice across the board, barring the surprising exception of Ofcom– the media regulator of the United Kingdom. In India, media is self-regulated and has quite a few ‘autonomous’ self-regulatory authorities, namely News Broadcasters Association (NBA), News Broadcasting Standards Authority (NBSA), and News Broadcasters Federation (NBF). However, as these organisations are prone to politicisation, their effectiveness and non-partisanship have often been questioned (Seshu 2019). Sensationalised and insensitive news reporting is an issue that frequently comes to the fore during any crisis. Digital media is another hydra yet to be tamed. Recently, Google was fined 1,337 Cr by the Competition Commission of India for violating the Competition Act by abusing its dominant position in multiple markets with its Android mobile operating system (OS).

Several states have resisted engaging in policing reforms. In this regard there has been a tussle between ensuring accountability of the police to the political executive and granting them operational freedom. The political class have evaded forming the Independent Complaints Authority as an impartial and professional police force might be against their vested interests.

Such resistance to progressive policing reforms is detrimental to society as a whole as it fails to check instances of police brutality, corruption, and other forms of misconduct. It is essential for politicians and policymakers to prioritise the interests of the people and promote a police force that is transparent, accountable, and professional.

Reforming the policing institutions is a challenging but necessary process that requires a collaborative effort from all stakeholders, including politicians, law enforcement agencies, and civil society organisations. It is only through such efforts that a fair and impartial system of justice can be established.

The necessity of public interest in regulation is also evident in several policy steps that have been undertaken recently. India has implemented several policies in recent years that prioritise public interest in regulation. One of the most notable examples is the implementation of the Real Estate (Regulation and Development) Act, which aims to regulate the real estate sector and protect the interests of homebuyers. The act mandates that all real estate projects be registered with the regulatory authority, and requires developers to maintain a separate bank account for each project to ensure that funds are not diverted. Additionally, the act requires developers to disclose project details and ensure timely delivery of completed projects to buyers. Another example is the implementation of the Goods and Services Tax (GST), which simplifies the tax system and benefits both consumers and businesses. The GST replaced a complex system of multiple taxes and fees, leading to greater transparency and efficiency. It also helps prevent tax evasion and corruption, leading to increased revenue for the government.

Furthermore, India’s Telecom Regulatory Authority has taken several steps to protect consumers in the telecommunications sector. One such step has been the implementation of strict rules on telemarketing and the establishment of a grievance redressal mechanism for customer complaints. Overall, these policy steps demonstrate the Indian government’s commitment to prioritising public interest in regulation, leading to greater transparency, accountability, and protection for consumers.

Environmental regulations present a blurred picture. While several laudable steps have been taken, such as setting up the National Green Tribunal Act and increasing the share of renewable energy, implementing several of these mechanisms has revealed many loopholes. Ambitious agendas like eliminating single-use plastics and NDC are set. However, regulatory mechanisms do not have roadmaps or alternatives for achieving such goals. In the case of Delhi’s pollution, a Commission had been set up to regulate activities that might cause pollution. But, regulating a complex issue like pollution requires professionalism. It requires expertise in multiple fields like environmental science, engineering, law, and public policy. Professional regulators are equipped with the necessary knowledge and skills to understand the complexities of pollution, identify the sources of pollution, and develop effective strategies to control and prevent it. They are also able to enforce regulations in a fair and impartial manner while balancing the interests of various stakeholders.

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This brings us to a vital question. Given the complexity of its society and politics, can India hope to be a perfect regulatory state? This is a question that is difficult to answer. By taking a comprehensive view of the state mechanisms, it is clear that the role of IRAs presents a mixed picture. In areas like finance, it has more or less been credible. In other areas, the record has been mixed. In several instances, the political imperative has overridden an impartial analysis of policies. However, in all these years, it is clear that India has made a paradigm shift in its approach to regulation from a command and control mindset to a sandbox strategy.


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