Do Expert Committees Matter?

Reforms are the result of research and shared beliefs, as shown by the quiet and continuous changes in the financial sector

- K P Krishnan

The Reserve Bank of India (RBI) last week uploaded an innocuous-sounding document on its website called the "Framework for Formulation of Regulations". It went largely unnoticed. In the field of regulation, however, it is a development of profound significance.

The essence of the state is its monopoly on violence and the exercise of coercive power. In democracies, state coercion is permissible only with the authority of law — and that law is required to be backed by democratic legitimacy. Democratic legitimacy in coercion is born of legal procedures and norms. The Indian Constitution prescribes an elaborate process through which state coercion can take place. Alongside this, norms such as expert and parliamentary committees, and consultations with stakeholders also shape the outcome.

Statutory Regulatory Authorities (SRAs) are a major author of law in India today. They have been given the power to legislate — that is, to write legal instruments that demand certain behaviour of private persons, with penalties associated with non-compliance. The impact of this power on regulated entities is exactly like the impact of laws made by legislature.

For example, the Securities and Exchange Board of India (Sebi) has made regulations on the subject of insider trading. Violating these regulations can result in severe penalties, including fines of up to ₹25 crore, imprisonment, and restrictions on trading in the securities market. In the financial sector alone, it is estimated that about 10 "laws" are released every working day by all financial agencies put together.