Consultative regulation-making that should go further

In May this year, the Reserve Bank of India (RBI) issued a policy framework for how it will publish regulations, directions, guidelines and notifications.

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This follows a similar move by the Securities and Exchange Board of India (SEBI), in February, which published regulations setting out the procedure it would follow to issue regulations. Regulators such as the Reserve Bank of India (RBI) and SEBI, have been created by Acts of Parliament and have quasi-legislative powers. Within this context, strong procedural safeguards and robust checks and balances are essential to uphold the rule of law. The recent frameworks, which outline the procedures that the RBI and SEBI must follow when making law, are a welcome start. When proposing any new regulations or amendment to existing regulations, the RBI will now conduct "impact analyses" and SEBI will state the "regulatory intent and objectives". Both regulators will also invite public comments for 21 days. Moreover, they will now periodically review their own regulations.

These reforms signal a welcome shift toward more transparent and consultative regulation-making. Yet, they can, and should go further. Two additions will make these processes more robust, and ensure greater transparency and accountability. First, regulators should clearly identify the economic rationale for their interventions, and second, they should institute mechanisms to ensure accountability for periodic reviews and responses to public comments.

The issue of market failure