About Review of Regulatory Bodies: UPSC Current Affairs

PERFORMANCE REVIEW OF REGULATORY BODIES

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Context:

The Public Accounts Committee (PAC) to review regulatory bodies.

About the Public Accounts Committee (PAC)

It was established in 1921 under the Montagu-Chelmsford Reforms.
Its main responsibility is to scrutinise government expenditure.
It holds the government accountable for how public funds are used.
It reviews the government’s expenditure and ensures that public money is spent for the intended purposes.
It is established under Rule 308 of the Rules of Procedure and Conduct of Business in Lok Sabha.
It consists of 22 members:

15 elected by the Lok Sabha 7 by the Rajya Sabha

A minister cannot be appointed as a member of this committee.
Before 1967, the Chairman of the Public Account Committee used to be appointed by the ruling party in Lok Sabha.
- - In 1967, a parliamentary convention decided that the chairman of the committee would be appointed from the opposition party.
The members of the committee serve a one-year term.

The recommendations of the PAC are not binding on the Government.

Regulatory Body in India

Regulatory bodies play a critical role in shaping, monitoring, and guiding various sectors of the Indian economy.
They are independent or quasi-independent agencies that have the responsibility to ensure that industries and organisations function under the laws, standards, and ethical practices.
Their primary goal is to maintain fairness, protect public interest, and promote sustainable growth across various sectors of the Indian Economy.

Evolution of Regulatory Body in India

After independence, the government played a dominant role in most sectors.
In 1991, with the adaptation of the new economic policy, India opened its markets for global competition.
- - The regulatory bodies were established to ensure fair competition, prevent monopolies, and protect consumers' interests.
Today, India has a diverse range of regulatory bodies regulating and monitoring sectors such as telecommunications, finance, healthcare, and education.

Key Regulatory Body

Reserve Bank of India (RBI)

In 1935, RBI was established under the Reserve Bank of India Act 1934.
In 1949, it was nationalised to manage monetary policy and maintain financial stability, while promoting economic growth.
It regulates and supervises commercial banks, cooperative banks, and other financial institutions.

Securities and Exchange Board of India (SEBI)

It was established in 1988 as a non-statutory body and given statutory powers in 1992 through the SEBI Act, 1992.
It regulates stock exchanges, brokers, mutual funds, and other participants in the securities market.

Telecom Regulatory Authority of India (TRAI)

It was established under the Telecom Regulatory Authority of India Act 1997.
It regulates the telecommunications sector and ensures that telecom services remain affordable, efficient, and reliable for consumers.

Food Safety and Standards Authority of India (FSSAI)

It was established under the Food Safety and Standards Act 2006.
It formulates and implements standards for food products to ensure that they are safe for consumption and free from contamination.

Insurance Regulatory and Development Authority of India (IRDAI)

It was established in 1999 under the IRDA Act 1999.
It regulates the functioning of insurance companies, ensuring that they function under rules and regulations and operate transparently and fairly.

Functions of Regulatory Bodies

They create guidelines and ensure that industries operate within the legal framework.
- - For example, SEBI ensures transparency and fairness in the stock markets, while RBI enforces monetary policies to maintain economic stability.
They protect consumer interests.
- - For example, FSSAI sets food safety standards to ensure the public has access to safe and hygienic food.
They work to prevent monopolistic practices.
- - For example, the Competition Commission of India (CCI) ensures that businesses compete fairly, and prevents anti-competitive actions.
They monitor industries, investigate violations, and impose penalties.
- - For example, SEBI can impose fines on companies for insider trading.
They act as advisers to the government on industry-specific policies. Their expertise helps in formulating effective regulations and standards.

Challenges Faced by Regulatory Bodies

Overlapping jurisdictions between regulatory agencies cause inefficiency in their operations.
Regulatory agencies are supposed to operate independently, but in practice, many experience pressure from political authorities, limiting their ability to make fair decisions.
Many regulatory bodies struggle to perform efficiently due to limited resources; manpower and financial support.
- - This affects their ability to enforce regulations effectively.
  - For example, TRAI's limited workforce obstructs its ability to monitor the vast and rapidly growing telecommunications sector.
Regulatory bodies face efficiency challenges due to bureaucratic delays in decision-making and implementation of the decision.
- - The slow pace of decision-making can delay innovation and growth in regulated industries.
  - For example, delays in environmental clearances have affected infrastructure projects across India.
Sometimes regulatory bodies have been found to indulge in corrupt practices, which erodes public trust.

Single Regulator v/s Multiple Regulators
Background	The Regulations approach traditionally focused on institutional lines; different types of institutions like banks and insurance companies have separate regulators. The current regulatory framework in India remains largely institutional, with separate regulators for banking, securities, and insurance. Increasing financial interconnection across several sectors of the economy has raised questions about the effectiveness of the traditional approach. It started a debate on having a unified regulatory structure to manage various sectors more comprehensively.
Arguments for Unified Supervision	A unified regulator can better assess risks across different financial services and institutions. It will prevent different regulators from applying different regulations to the same activity. It will reduce jurisdictional disputes among multiple regulators. It will help in cost savings through shared infrastructure and technology. It will enhance transparency and accountability It will be easy to hold a single regulator responsible for performance and regulatory failures.
Arguments Against Unified Supervision	A single regulator may struggle to balance various objectives, such as systemic risk management and consumer interest protection. It might become inefficient, bureaucratic, and less innovative compared to specialised agencies. Different financial sectors (banking, insurance) have diverse risk profiles and cultures, it will be difficult for a single regulator to manage the diverse tasks effectively. Creating a unified regulator requires several legislative changes and risks, including potential disruptions in the institution.

Way Forward

Regulatory agencies require more autonomy to increase their operational effectiveness.
Appointments should be merit-based and free of political intervention.
Clear rules and regulations outlining the roles and responsibilities of various regulatory agencies will eliminate misunderstanding and delay, and will also enhance efficiency.
A coordination mechanism should be established to ensure a smooth exchange of information between different regulatory bodies.
Investment in Regulatory agencies is important for increasing manpower, providing better training, and adopting modern technologies.
Regulatory bodies must ensure transparency in their functioning and decision-making processes.
Regulatory bodies should integrate technology for better monitoring and enforcement.
- - For example, blockchain could be utilised to ensure transparency in financial transactions, and artificial intelligence could help in monitoring compliance in real time.

The Financial Sector Legislative Reforms Commission (FSLRC)

Background

It was established by the Ministry of Finance in 2011 to review and reform the legal framework governing the financial sector.
The FSLRC proposed a comprehensive recommendation through a draft Indian Financial Code.

Key Highlights of the Indian Financial Code Draft

Creation of a unified Financial Redressal Agency (FRA) to handle grievances from consumers across all financial sectors.
It recommends the creation of the Financial Stability and Development Council (FSDC) as a statutory agency.
- - This council would take the lead in identifying and minimising systemic risks to the financial system.
It proposes a clear separation of responsibilities between regulators and the Ministry of Finance.
- - Market infrastructure and development initiatives would fall under the responsibility of regulators.
  - Redistribution policies remain under the purview of the Ministry.
It recommends the creation of a specialised, independent Debt Management Agency to manage public debt.

Present Regulator	Proposed Regulator	Functions
RBI (Reserve Bank of India)	RBI	Manage Monetary policy Regulation and supervision of banks Regulation and supervision of the payments system.
SEBI (Securities and Exchange Board of India) IRDA (Insurance Regulatory and Development Authority) PFRDA (Pension Fund Regulatory and Development Authority) FMC (Forward Markets Commission)	Unified Financial Agency (UFA)	Regulation and supervision of non-bank financial markets and all markets not related to payment systems.
Securities Appellate Tribunal (SAT)	FSAT (Financial Sector Appellate Tribunal)	It will hear appeals against decisions made by the RBI, UFA, and FRA.
Deposit Insurance and Credit Guarantee Corporation (DICGC)	Resolution Corporation	Responsible for resolution activities across the financial system.
Financial Stability and Development Council (FSDC)	FSDC (as a statutory agency)	Management of systemic risks to the financial system.
New Regulator	Debt Management Agency	Independent management of government debt.
New Regulator	Financial Redressal Agency (FRA)	Handling consumer complaints across financial sectors.

Conclusion

Regulatory authorities are crucial for balancing growth, fairness, and consumer protection. However, to completely fulfil their potential, these institutions require greater authority, better resources, and clearer guidelines.

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Source:

Business Today

Department of Economic Affairs

PRACTICE QUESTION

Q. Critically analyse the challenges that regulatory bodies are facing in India in ensuring effective governance and transparency, particularly in sectors like telecommunications and finance. Propose solutions to improve coordination between overlapping jurisdictions of different regulators.