Upholding the autonomy and accountability of RBI

Broader issues remain in the appointment process and tenure. These need constant recalibration

- NK Singh

‘S President Donald Trump’s recent attempt to sack Federal Reserve Governor Lisa Cook, the Supreme Court's meddling in the matter, and the hurried appointment of Stephen Miran, Trump's appointee on the Fed board of governors, is extraordinary and unseemly.

It inevitably triggers thoughts that leaders in other countries could emulate this course of action. More importantly, it diminishes the basic philosophy of regulatory and regulators’ independence.

To be sure, independence is not immunity. When Parliament or Congress (in the US) creates regulators, it delegates sovereign power. That delegation is meant to prevent regulatory capture. But, if regulators end up serving the interests of those who appointed them, regulatory independence would bea hollow pursuit.

Consider the classic case of India’s power sector. State finances bled under the weight of power distribution companies. Independent regulators were expected to reverse the perennial bleeding and enforce discipline. They were meantto fixmarket-determined tariffs, and lay down procedures for billing and realisation of dues. However, despite the regulatory institutions set up, the outcome has been the reverse. The capture of regulators, particularly ina federal polity, by state governments has only worsened the problem.

Why has this happened? Perhaps the statutes creating independent regulators have infirmities. Appointments remain political. Rules of eligibility are vague. Terms of service breed insecurity. Exitrules are more convenient. All of these reinforce regulatory capture. Many key ingredients of our reform strategy need active concert by the states. As more sectors of the economy get deregulated, the issue deserves closer examination.

What follows must bea broader consensus between the Union government and thestates. The GST Council offersa good template, but needs significant changes.