Regulating relationships

Independent regulation involves the transfer of powers once exercised by governments to autonomous statutory agencies whose status in government is not clearly defined. This has naturally caused friction between ministries and regulatory authorities, and has resulted in a debate on the relationship between the government and the regulator. Regulators have kept their distance from governments and have been particularly anxious to demonstrate that there is no regulatory capture by governments. There are others who feel that in the interest of sectoral development, there should be close consultation between the regulator and government, as happens in the UK. Regulatory independence or autonomy cannot be secured merely by establishing regulation through legislation. The legislation should also contain appropriate provisions in regard to appointments, removal from office, freedom to appoint staff, financial autonomy etc to ensure regulatory autonomy. For example, look at the provisions relating to the appointment of the members of the regulatory authorities. In the case of the Telecom Regulatory Authority of India (TRAI) and the Tariff Authority for Major Ports, appointment of chairman and members is entirely the prerogative of the executive; in the case of the Central Electricity Regulatory Commission, the law requires the government to choose the chairman and members from a panel prepared by a search committee. Clearly, if the appointment of a regulator is to be at the mercy of the executive, the regulator's independence could be questioned. This is also the position in regard to the authority for the removal of members. The manner in which a member can be removed varies across sectors. Consultation with the Supreme Court is mandatory in the case of the CERC. There was a similar position in the TRAI Act of 1997 which was removed when the Act was amended through an Ordinance in 2000. Government is now free to remove the chairman and members of TRAI, which is what it did in 2000 when it sent home six out of TRAI's seven members. A regulator should be autonomous, but autonomy does not mean that the regulator would not be bound by the policy of the government in office. Since the government is responsible to Parliament, it is the best judge of public interest, and best equipped to lay down "public policy". Governments should, therefore, have the power to issue policy directives as appropriate to the regulators, and this has been provided in all the regulatory legislation in India. However, public policy, has not been clearly defined anywhere. The courts have also been extremely reluctant to define public policy narrowly and have generally taken the view that it is for the government to decide what is a public policy. There are, however, limitations both in law and in equity, on the extent to which governments can alter public policy, or issue policy directives to the regulators. Policy directives to a regulator should conform to the objectives of the relevant regulatory legislation. Governments must take care to ensure that these directives do not relate to what are clearly "administrative and technical matters" and are strictly "policy in nature". Thus, while the regulator is bound by the public policy of the government, the formulation of public policy has to be within the confines of the limitations set out above. Equity, also, demands that while governments can issue policy directives, they must invariably consult the regulators before such directives are issued. In fact, this has been made legally binding in the telecom and ports regulatory legislation, although consultation has been required only ''as far as practicable". In the central legislation in the electricity sector, no provision at all has been made for consultation. Eventually, as the process of regulation matures in India, as it has in the UK, there should be no, need at all to issue directives, and there should be close consultation between the governments and regulator But as long as the need for the issue of policy directives remains, it is essential that the regulator should be invariably consulted and his views respected. And, it is equally important that the directives issued, and the reasons therefore be made public. Since the definition of a public policy is imprecise, legislation in some states provides for a mechanism to refer the question as to whether a directive is a policy directive or not to a third party. The decision as to whether a matter is a policy matter or not is essentially a judicial and not a technical one, and should, therefore, be left to the sitting judiciary to decide. Besides, reference to a third party takes away the legitimate power and role of the high courts and the Supreme Court, as envisaged in our legal system. It also takes away the Court's jurisdiction to strike down a policy directive if it was violative of law. A policy direction was issued in recent times in India's telecom sector in the context of the implementation of the telecom tariff order in March 1999. On 12 March 1999, the government issued a direction keeping the tariff order in abeyance, as it allegedly did not protect low-income users. The regulator then unsuccessfully requested the government to clarify the basis for the direction issued. The matter was later 'amicably' settled. But this episode demonstrated that the government did not bother to follow the provisions of law, and failed to respect the independence of TRAI. A healthy relationship between regulator and government should evolve over time. And there should be close cooperation between the two as regards the development of the sector. Governments should respect the regulatory bodies and seek their expert advice on all issues relating to the sector. Simultaneously, the regulators should earn legitimacy through transparency, better communication strategy, building unquestionable regulatory expertise, and willingness to work with government and other stakeholders to promote the development of the sector they regulate.