Evolution Of A Regulatory Framework In India
What is the issue?
- Transparent regulators are a must for evolution of mature markets.
- In India, political considerations have time and again forced distortions in regulatory frameworks.
What is a Regulatory Regime?
- Liberalisation of economies and unleashing of market forces gives birth to regulators and regulatory regimes.
- Economists described this as the transition of a government’s role from positive intervention to arm’s length superintendence.
- But the manner in which the regulatory system has been established and ‘Regulatory obstructionism’ to development of businesses is a debatable issue.
- Lack of transparency and accountability of the regulators in India has been flagged by many economic observers.
Currently how deos the regulatory framework in India look?
- Over a period of time, a number of regulatory bodies, ranging from RBI, SEBI, IRDA, PFRDA to TRAI, electricity regulators, CCI, FDA have been set up in India.
- There is a proposal to create a regulator for the aviation and rail traffic business as well and many more may follow.
- These regulators have been empowered to set the policy agenda, outline regulations, punish non-compliance and garner resources to manage their affairs.
- The policy direction pursued by every regulator has to support the development of the market of the allocated jurisdiction.
- However, in Indian democracy, social and political populism has proven to often overtake the economic agenda.
What are the issues concerning regulatory sector?
- Politicisation - As economic agents inherently intend to maximise profits, market misconduct happens in every domain.
- Whenever such incidences occur, they have to be dealt with pragmatically but due to political pressures, policy makers go overdrive and frame restrictive policies and denounce regulators.
- The politicisation of such events has made the regulators in India overcautious & frightened in order to dodge any blame game.
- Performance - In many cases, non-experts are selected to lead the regulatory bodies thereby affecting technical aspects.
- Second, the review mechanism for the functioning of the regulatory bodies is not very robust.
- In particular, it does not include the role of regulators in the development of the market.
- Upgrading - The inventions and innovations in the sector and the society at large influence the direction of the market.
- Hence, regulatory mechanisms need to update in consonance with the above mentioned changes without much delay.
- If these issues aren’t addressed, the development of the mature and well regulated markets will take a serious beating.
What are the larger questions doing the rounds?
- A regulatory state was conceived as a fast and flexible alternative to the cumbersome and bureaucratic frames of the replaced era.
- However, questions about the democratic governance and accountability of regulators are being raised around the world.
- This is because substantial power to make laws has shifted from elected representatives to technocrats sitting in regulatory bodies.
- The Government should consider appointing a high-level task force immediately to delve deep into these issues.
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GDP Numbers – Is India Steadily Loosing Momentum?
What is the issue?
- India’s economy is slowing down for the past 5 quarters.
- Investments-led growth can reverse the situation but the policy response has been sluggish
How is the slowdown explained?
- GDP growth has lost momentum since March 2016.
- The slowdown is being explained away either as a transitory phenomenon or as beyond the government’s control.
- Deficient rains, sluggish world economy, or lately due to demonetisation and the GST have all been cited as reasons at different times.
- While the reasons change, the economic trend remains the same.
How have the various drivers of the economy fared?
- In the boom years, four engines powered the economy - Exports, Government investments, Private consumption & Private investments.
- While government investments and private consumption were going strong even 2 years ago, the other two went out of steam early and remain so even now.
- The slowdown has now spread to all aspects of the economy.
- There was a noted slowdown in the quarter ending June 2017 in all four growth engines.
What could be the explanations?
- As incomes improve, private spending and tax collections pick up.
- Hence government investments and private consumption depend on how well the economy is doing as a whole.
- Exports - The global economic downturn that followed the 2008 financial crisis dealt a body blow to exports.
- Recovery in the global economy has lifted exports of most Asian countries, but Indian exports are stagnating.
- This has partly been due to an over-valued rupee.
- Investments - India’s economic future can improve significantly with investments-led growth.
- The decline in private investments over the past 5 years is so sharp that it has offset the increases in government investments.
- The steps taken for improving the ease of doing business and the foreign investments regime have proved insufficient.
Why are investments not coming up?
- Companies don’t seem convinced that new investments will be profitable.
- Many variables like costs, availability of finance, land, labour, technology, logistics, and taxation affect investment decisions.
- As the government is politically sensitive in decision making, it is unable to progress on land and labour reforms.
- Also, credit creation has almost ceased due to the NPA problem.
- Additionally, in an environment of constant shocks like demonetisation and unanticipated policy changes, investment decisions tend to get postponed.
How has the government responded?
- While the government is notably swift with decision-making there seems to be a disconnect between policy tools and objectives.
- Part of the problem seems to be that the government is inert even to the advice of its own economists.
- Even the analyses documented in the Economic Survey has had minimal influence on policy
- Demonetisation has proved a drag on an already slowing economy.
- Whiles its effect on the informal sector is beginning to be undserstood, an untimely GST may aggravate its woes.
- While the speedy decision making is important, it needs to be recognized that quality advice needs to be heeded to.
Author : Shankar IAS Academy, Chennai.
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