Regulatory Reforms in India: An Overview
The recent Budget announcement highlighted regulatory reforms outside the financial sector. This decision suggests a belief that non-financial regulation needs more reform compared to the financial sector, which has seen substantial improvements over the years.
Evolution of Financial Regulation
Financial sector regulations in India have undergone a structured development process:
- The evolution began with foundational thinking on market failure and the necessity for state intervention.
- Followed by identifying specific functions to transfer from government departments to independent agencies equipped with accountability mechanisms, such as the Reserve Bank of India's inflation targeting.
- This led to the creation of statutory regulatory authorities (SRAs) like the Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority of India (IRDAI), and Pension Funds Regulatory and Development Authority (PFRDA).
These SRAs have statutory empowerment and autonomy, are responsible for making regulations, and have the authority to recruit personnel independently, with government involvement limited to board-level appointments.
Non-Financial Sector Regulation
Regulatory frameworks in sectors outside finance are less advanced. Many regulators lack autonomy and require government approval for regulatory decisions. This includes sectors like food, medicines, and education.
Ministry of Corporate Affairs (MCA) and Its Challenges
The MCA oversees numerous SRAs, including:
- Registrar of Companies (RoC)
- Competition Commission of India (CCI)
- Insolvency and Bankruptcy Board of India (IBBI)
- National Financial Reporting Authority (NFRA)
The regulatory structure imposes significant compliance overheads, disproportionately affecting smaller firms and stifling entrepreneurship.
Need for Integrated Regulatory Approach
An integrated approach to finance and non-financial regulation could enhance efficiency and foster economic growth. Applying the three-step process used in the financial sector could be beneficial for the MCA.
Design Elements and Practices within MCA
The MCA incorporates some innovative practices:
- The CCI Act requires a Supreme Court judge's inquiry before removing board-level officials.
- IBBI has set a precedent by drafting a regulation on regulation-making procedures and ensuring separation of powers in disciplinary actions.
These practices reflect a commitment to upholding constitutional values and improving organizational effectiveness.
Recommendations for Improvement
A project similar to the Financial Sector Legislative Reforms Commission (FSLRC) is suggested for the MCA. This initiative would apply modern public economics and administration principles to create high-performance agencies aligned with Indian Constitutional values.
