Monday, October 24, 2005

Regulation Masterclass

The recent proposal to re-staff the regulatory agencies in the power sector prompted two very thoughtful responses from Prof Navroz Dubash and Sudha Mahalingam. Navroz argues that countering the democracy deficit in regulatory institutions is not only about appointing suitable regulators with technical expertise, but more importantly about the open consultative process that regulators follow as exercises in considered public reasoning. This echoes Richard Stewart's path breaking work [The Transformation of American Admin Law 1977 Harv LR] articulating the democratic quality of administrative action more generally, something all of us administrative lawyers must read to appreciate the new challenges in maintaining the democratic pedigree of the emerging regulatory Indian state.

Two other modes of preserving the democratic character of regulation could be explored. First, independent regulators should be required to report regularly to the Legislatures and the relevant House Committees. This would substitute for the individual Ministerial responsibility to Legislatures which is likely to confined hereafter to matters of policy. These public spectacles where the Executive Agency gives account for its actions and policy to the Legislature will bring to the fore the particular role and function of both organs of government. This is particularly important as the British style of government we adopted after Independence seldom required executive bureaucrats to be directly responsible to the legislature and hid from view this aspect of the separation of powers doctrine's application.

Secondly, the statutory power of the government to set overarching policy objectives that regulators are obliged to follow will effectively maintain the democratic control over the regulator. Sudha Mahalingam suggests that the Ministry's frustration with the regulators cross subsidy surcharge calculations which threaten to make open access distribution a non-starter has spurred the present proposal to replace them altogether. Surely, regulatory policy at this level of detail - formula for cross subsidy surcharge - is a matter best left to regulators and far too detailed to be a matter on which the Government/Ministry may issue directions to it, even where the Ministry believes that it has better expertise on the matter. The Ministry should commit itself to persuade rather than sack the regulators!

She goes on to argue that the present approach to the power sector makes the mistaken assumption that market pricing of electricity is possible and further that tariff fixing is a technical rather than political process. This is surprising as it would seem to me that neither of these propositions would operate as uncontested premises in any argument for a regulatory authority which sets up a regulated market to achieve BOTH market and non-market objectives. Surely our core concern should be with the process by which regulators balance various stakeholders - the market, the government and consumers - when designing tariff policy. The success of regulation will, as Prof Navroz insightfully points out, not rest on regulators being 'three wise men' but on their ability to conduct themselves with probity, impartiality and competently at the altar of public reason.
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