Regulating the regulators

A less diversified talent pool for choosing regulators could dilute a key reform principle

- RAISINA HILL A K BHATTACHARYA

Looking back at India's reforms story of more than three decades, it is worthwhile to recall that economic liberalisation of the 1990s had a few implicit assumptions of how an economy should function and grow on a sustainable basis. One of those assumptions followed from the government decision to allow the private sector to operate in areas that were hitherto monopolised by state-owned enterprises. Under such liberalisation, it was assumed that while the government would continue to frame policies for areas opened up to the private sector, the regulation or enforcement of those policies would be undertaken by independent regulators through rules framed by them.

A classic example of this thinking was India's telecommunications sector that was opened up to the private sector in the early 1990s. This was followed by the setting up of the Telecommunication Regulatory Authority of India or Trai a few years later. Subsequently, the business of basic telephone services, run in large parts of the country by a government department, was hived off to a newly created state-owned enterprise. Something similar, in varying degrees, happened in other areas such as the insurance, airports, and power sectors. In addition, the Competition Commission of India (CCI) was set up to regulate and adjudicate upon issues of market dominance and practices that undermined competition in various sectors. The principle was clear: Let the government frame the policy (and not run a business), while independent regulatory bodies could enforce the policy by framing necessary rules.