Reforming corporate regulatory agencies

Regulators under the Ministry of Corporate Affairs need reform to match the empowerment and autonomy of financial sector regulators

- AARTHIKAM CHINTANAM K P KRISHNAN

One of the announcements in the latest Budget was on regulatory reforms outside of finance. Though the finance minister (FM) did not elaborate on the logic of excluding financial regulation from this exercise, the obvious inference is that our policymakers think non-financial regulation is more in need of reform than financial regulation.

Financial sector regulations, and the functioning of financial regulators, undoubtedly need considerable reform. However, compared to regulation in other sectors in India—and the conditions that prevailed before them—the statutory regulatory authorities (SRAs) in finance remain among the best visible in the country.

These regulators grew out of a three-step process. The first was foundational thinking about market failure and the need for state intervention. The second was identifying a clear set of functions that could be carved out of a government department and assigned to an arm's-length agency, where accountability mechanisms could be established (e.g., inflation targeting for the Reserve Bank of India). Finally, there was the creation of the checks and balances through which these organizations could add value, rather than merely exercising regulatory power.

In the financial sector, this is the journey that took place with the establishment of the Securities and Exchange Board of India (Sebi), the Insurance Regulatory and Development Authority of India (Irdai), and the Pension Funds Regulatory and Development Authority (PFRDA). These SRAs fare well on statutory empowerment and autonomy. The laws creating these bodies have conferred on them the power to make regulations, as well as the authority and financial resources required to recruit personnel without any reference to the executive government. Only the board-level functionaries of these bodies are appointed by the government.