The responsiveness of laws and policies to citizens’ preferences and conduct, has been the central theme of extensive literature focusing on political science and administrative law.1 The question of responsiveness to citizens assumes greater importance in the case of unelected, or indirectly accountable agencies such as independent regulatory agencies. Such agencies are under a greater burden to ensure they act in a fair and transparent manner and thus, their policies are accepted by people who did not directly elect them, preempt regulatory capture and exhibit accountability to the principal which appointed them.2
With the advent of privatization in the late 1990s, India created several arms-length regulatory bodies. Table 1 provides a list of the major regulatory agencies in India today.3 The Reserve Bank of India, which is also the regulator for large swathes of the financial sector in India, has been in existence since 1934. Most other regulatory agencies started being established in the early 1990s and the trend of creating independent regulators for different sectors has continued well until 2016. However, India lacks a common administrative law framework that mandates public consultation or participation in the rule/regulation making process.4 Responsiveness vis-a-vis the regulated and the beneficiaries of regulation in the regulation-making process has therefore arisen in the absence of this statutory administrative framework.
|Table 1: Independent regulatory agencies established under federal laws in India|
|1||Reserve Bank of India (RBI)||Finance||1934|
|2||Securities and Exchange Board of India (SEBI)||Finance||1992|
|3||Telecom Regulatory Authority of India (TRAI)||Infrastructure||1997|
|4||Tariff Authority for Major Ports (TAMP)||Infrastructure||1997|
|5||Insurance Regulatory and Development Authority (IRDA)||Finance||1999|
|6||Competition Commission of India (CCI)||Competition||2002|
|7||Central Electricity Regulatory Commission (CERC)||Infrastructure||2003|
|8||State Electricity Regulatory Commissions (SERCs)||Infrastructure||2003|
|9||Pension Fund Regulatory and Development Authority (PFRDA)||Finance||2005|
|10||Food Safety and Standards Authority of India (FSSAI)||Health||2006|
|11||Warehousing Development and Regulatory Authority (WDRA)||Infrastructure||2007|
|12||Airport Economic Regulatory Authority (AERA)||Infrastructure||2008|
|13||Petroleum and Natural Gas Regulatory Board (PNGRB)||Infrastructure||2008|
|14||Real Estate Regulatory Authority (RERA)||Infrastructure||2015|
|15||Insolvency and Bankruptcy Board of India (IBBI)||Finance||2016|
In the absence of a common statutory administrative framework, each of these agencies is guided by its own statute, which prescribes standards for their functioning. These standards vary vastly. As a result, there is wide variance in the extent to which these agencies are responsive in the performance of their functions. Moreover, common standards for measuring the performance of regulators are absent in India.5
What does this paper do?
This paper proposes a framework to measure the extent to which Indian regulators are responsive in the performance of their regulation-making functions. We demonstrate the viability of this framework by measuring the responsiveness of four Indian regulators.
We analyze the responsiveness of regulators on two axes. First, we analyze their responsiveness along a rule-based axis - we study the extent to which parliamentary legislation requires them to be responsive. Second, we study responsiveness based on outcomes - the extent to which the processes followed by statutory regulators in India are responsive while making regulations. In order to do so, this paper develops a set of benchmarks for what constitutes adequately responsive conduct in the context of the regulation-making functions of a regulator. We then identify a quantifiable output for each benchmark and assign scores to the quantifiable outputs.
Using these benchmarks and quantifiable outputs, we conduct a comparative case-study of two financial sector regulators (Securities and Exchange Board of India (SEBI) and Reserve Bank of India (RBI)) and two infrastructure regulators (Telecom Regulatory Authority of India (TRAI) and Airport Economic Regulatory Authority (AERA)). We measure the extent to which each has been responsive in the performance of its legislative functions over a given period of time. We measure their performance against the quantifiable outputs and assign scores to their performance.
Our analysis reveals three significant findings in relation to the responsiveness of regulatory agencies in India -
- First, there are significant differences in requirements for responsiveness within the laws establishing independent regulatory agencies.
- Second, the level of responsiveness (participatory processes being followed) is generally low when measured against our benchmarks, and there is significant variation among regulators within this range.
- Third, the degree of responsiveness of these four regulators seems directly proportional to the legal requirements for following participatory processes.6
Why is this paper relevant?
The idea of a “responsive" regulatory State was conceived in, and much discourse on this subject has been limited to, developed economies.7 Academic literature on regulators in emerging economies has largely focused on the political economy and institutional location of independent regulators as technocratic agencies.8 The literature on Indian regulators has largely focused on the impact of regulatory agencies in specific sectors.9 10
This paper departs from the political economy-oriented approach commonly taken towards studying regulators in emerging economies. We develop a framework for empirically analyzing the performance of the regulatory function of regulation making. The mere existence of a public consultation process will not automatically democratize delegated legislation-making. Hence, in this paper, we create a framework for evaluating the qualitative aspects of a consultation process. It is one of the first papers to develop a consolidated set of benchmarks for a responsive legislative consultation process that can be used to quantify the responsiveness of not only Indian regulators, but also others. We also undertake a novel exercise by using these indicators to develop scores measuring the responsiveness of Indian regulators. Our measures provide valuable insights on the degree to which one regulator performs better than another. This has direct implications for what can be done to improve the performance of regulatory agencies, and understanding the institutional setting for further reform.
The rest of the paper is organized as follows: Part 2 discusses the concept and features of responsiveness, in the context of law and policy-making. Drawing from this literature, we build a consolidated set of benchmarks of an adequately consultative process and devise quantifiable outputs for each benchmark. Part 3 measures responsiveness of Indian regulators on a rules-based axis. Additionally, we measure the responsiveness of specific regulators, the regulator for the securities markets (SEBI), the banking regulator (RBI), the telecom regulator (TRAI) and the airport tariff-setting regulator (AERA) on an outcomes-based axis. Part 4 concludes.
2 CONCEPT AND FEATURES OF RESPONSIVENESS
2.1 Meaning of responsiveness
Responsiveness in the context of regulation and governance has generally been conceived broadly. For instance, one idea of responsiveness is to conceptualize it as a democratic ideal responding to people's problems, environments and demands.11 On the other hand, responsiveness is defined as responsiveness to the behavior of regulated actors.12 They advocate a flexible approach of restorative strategy for self-enlightened actors and deterrent actions for “deviant" actors. This paper narrows the approach to responsiveness of a regulator in discharging its quasi-legislative functions.
Academic literature focusing on this aspect of responsiveness enumerates the features of responsiveness, instead of focusing on a definition. Stern and Holder (1999) propose broad measures for evaluating whether regulatory agencies are responsive to stakeholders in their decision making process (Table 2).13
|Table 2: Summary of best practices for regulatory consultations, Stern and Holder (1999)|
|1||Formal consultation exercises|
|2||Formal or informal hearings|
|3||Surveys of customer views and priorities|
|4||Genuine chance of influencing decisions|
There have been past attempts at looking at metrics for measuring regulatory performance in India. Table 3 provides a detailed list of benchmarks for measuring the degree of responsiveness of electricity regulators in India.14 These benchmarks include issues of internal capacity and accountability and those of consumer-facing processes. For example, their benchmarks include whether the consultation process was documented and whether there is a clearly designated individual or department within the regulatory agency for processing such inputs.
|Table 3: Summary of benchmarks developed by Dixit et. al. (2007)|
|1||Information about the public consultation process is circulated prior to the initiation of the consultation itself|
|2||Broad distribution of information about process|
|3||Targeted distribution of information about process|
|4||Systematic efforts to consult more vulnerable socio-economic groups|
|5||More than two mechanisms of public participation to get public input into planning|
|6||Clear time frame for decisions|
|7||Clear time frame for providing inputs|
|8||Accountability for inputs|
|9||All proceedings before the regulatory body are open to the public, and the public has the right to participate|
The Task Force on Transparency and Public Participation (2008) was established in the United States on the issues of transparency, public participation and strategic management, and their recommendations provide useful indicators for measuring responsiveness.15 These measures deal primarily with improving the existing process and ensuring its robustness. A summary is provided in Table 4.
|Table 4: Summary of processes recommended by US Task Force on Transparency and Public Participation|
|1||Involvement of the public in early stages of regulation-making (such as by announcing a periodic regulatory agenda in advance)|
|2||Adoption of pro-active processes to improve public access to agency information - build and publish datasets of information|
|3||Ensuring that public can monitor information disclosure|
|4||Encouraging transparent communications with external actors - Informal mechanisms for constant feedback|
|5||Usage of management based strategies to promote transparency and public participation - Strategic management/ organization policy for building effective participation mechanisms (policy manual, processes for evaluating performance on transparency and public participation)|
|6||Creation of regulatory dockets at the moment they begin the development of any new rule-making|
|7||Effective management of the release of information to ensure public access for example, rule-making|
|8||Promotion of multi-directional flow of information in the comment process (such as providing two rounds of seeking public comments and public hearings.)|
A survey of the practices prevailing in the European Union and five countries comprising South Africa, Canada, Switzerland, United Kingdom and the United States concluded with a recommendation to the effect that States must amend their constitutions to provide for effective and meaningful public participation in all forms of lawmaking or frame a law to that end.16 Finally, the Organisation for Economic Cooperation and Development (OECD) has issued best practices for regulatory governance, which includes a set of broad indicative benchmarks for a good consultative process (Table 5).17
|Table 5: Summary of best practices for regulatory consultations, OECD (2014)|
|1||Any proposed measures have well designed policy objectives and are written in a clear and precise manner so that stakeholders are able to provide comprehensive comments; impact assessments are an important part of the consultation process.|
|2||Outreach during consultation process.|
|3||Clear, enforceable, measurable, government-wide policy on active stakeholder engagement in developing and re- viewing regulations.|
|4||Sufficient time is allocated for the consultation process, particularly for consultations on major reforms|
|5||Any proposed new regulations are consistent and coherent with the existing regulatory framework.|
|6||Stakeholders views are actually used to inform decision-making, and not just to justify a decision already taken.|
2.2 Building quantifiable benchmarks for responsiveness in regulation-making
We have aggregated the features of responsiveness listed in the preceding paragraphs, and prepared a consolidated set of eighteen benchmarks of an adequate consultative process. For each benchmark, we have assigned a concrete output which is capable of being scored. We then use the scores to quantify the responsiveness of an existing regulator.
This index is provided in Table 6. The benchmarks have been classified under two broad heads:
- Capacity building within the regulator to conduct a consultation exercise; and
- Interface between the regulator and the public during the consultation exercise.
|Table 6: Consolidated list of benchmarks/ measures|
|S. No. Benchmark/ Measure/ Pro- Quantifiable output|
|Capacity building within the regulator|
|1||Early engagement with stakeholders through information dissemination||Early engagement with stakeholders through information dissemination|
|2||Regular publication of relevant information and datasets||Whether the regulator publishes datasets on the pre and post regulation effect on a market?|
|3||Systems for public monitoring of information disclosure practices||Whether the regulator has an internal whistle blowing mechanism for undisclosed information?|
|4||Mechanisms for continuous feedback (formal or informal)||Whether the regulator allows for petitioning for changes to existing regulations or for enactment of new regulations?|
|5||Internal capacity and systems (management tools and processes) for public participation||Whether the regulator has a process manual for conducting a public consultation exercise?|
|6||Dissemination of information regarding the participatory process||Is the information on the participatory process displayed on the website of the regulator?|
|7||Dissemination of information regarding the participatory process among targeted groups||Whether the regulator has awareness programmes amongst vulnerable groups and minorities?|
|8||Build review mechanisms for periodically assessing the quality of the public consultation process||Whether the regulator has a system for conducting periodic surveys and external audits of its consultation processes?|
|Conduct of consultation exercise|
|9||Publication of explanatory documents and data that allow stakeholders to provide informed comments.||Does the regulator publish explanatory documents such as consultation papers/ draft regulations?|
|10||Effective outreach and consultation with targeted groups as part of the consultative process||Does the regulator pro-actively communicate with groups most likely to be affected?|
|11,12,13,14||Multi-directional flow of information between the regulator and the public and the public inter-se||Does the regulator publish comments received before issuing the final regulation?
Does the regulator provide time for counter-comments?
Does the regulator provide a response to the comments?
Does the regulator provide more than one method of receiving feedback?
|15||Dissemination of information about time-frame within which decisions will be made, based on consultations||Does the regulator publish a statement of when the decisions will be made, based on the consultative process?|
|16||Adequate time for submission of comments||Does the regulator give adequate time for submission of comments and counter comments?|
|17||Internal processes for identifying who is accountable for running the process for the regulatory agency.||Does the regulator publish the name of the individual-in-charge of the consultation process?|
|18||Ensuring consistency with primary legal framework||Does the regulator publish the source of the legal power to issue the proposed regulations?|
Table 6 lists 8 measures for increasing responsiveness that require internal capacity building (Measures 1-8). Measures 9-18 provide ten quantifiable benchmarks for measuring actual responsiveness in the legislative functions of regulators. This paper measures the responsiveness of regulators for measures 9-18.18 Indian law does not prohibit regulatory agencies from adopting any of these practices. Regulators such as SEBI and others have, in fact, initiated some measures to improve regulatory governance in general19 in the absence of any explicit legal requirements to do so.
3 MEASURING RESPONSIVENESS OF INDIAN REGULATORS
3.1 Rule-based measures
Steps taken during the late 1980s to deregulate India's command and control structure did not fundamentally alter the administrative structure of the Indian state.20 This changed gradually over the 1990s, when a number of new regulatory agencies were established under specific parliamentary legislation. However, there is considerable difference in the internal processes and administrative law applicable to each regulatory agency. Evidence of this can be seen in the degree of difference in the primary legislation.
|Table 7: Legal requirement for independent regulatory agencies to be responsive|
|S. No.||Regulator||Legal requirement for consultation|
|1||Reserve Bank of India||No*|
|2||Securities and Exchange Board of India||No*|
|3||Telecom Regulatory Authority of India||Yes|
|4||Tariff Authority for Major Ports||No|
|5||Insurance Regulatory and Development Authority||No*|
|6||Competition Commission of India||No|
|7||Central Electricity Regulatory Commission||Yes|
|8||State Electricity Regulatory Commissions||Yes|
|9||Pension Fund Regulatory and Development Authority||No*|
|10||Food Safety and Standards Authority of India||No|
|11||Warehousing Development and Regulatory Authority||No|
|12||Airport Economic Regulatory Authority||Yes|
|13||Petroleum and Natural Gas Regulatory Board||No|
|14||Insolvency and Bankruptcy Board of India||Yes|
|15||Real Estate Regulatory Authority||No|
Table 7 highlights three important findings:
- Not all laws governing regulators mandate them to follow a consultation process in exercise of their quasi-legislative function.
- While none of the laws governing financial sector, regulators mandate them to be 'responsive', more than half the laws governing infrastructure regulators vaguely mandate 'responsiveness' in their functioning.
- While parliamentary laws specifically mandate AERA and TRAI to follow consultative processes, the standard imposed by the parliament in both cases is different. For instance, the law governing TRAI merely mandates 'transparency'.21 In contrast, the AERA law provides a detailed definition of transparency that includes the core components of a responsive regulation making process.22
Given the vague and varying standards mandated by the primary laws, it is unclear what consultative processes are sufficient for meeting the obligation established in the primary law.23
Given the lack of responsiveness mandates in the primary law and the wide variance in the mandate amongst primary laws that have it, we find that the Indian legal framework does not adequately require rules-based measures of responsiveness nor does the relevant administrative law provide a consistent definition of the same.
3.2 Outcome-based measures: Case-study of four regulators
To understand the extent of responsiveness of Indian regulators while performing their quasi-legislative functions, we analyze the performance of four Indian regulators - SEBI, RBI, TRAI and AERA - beginning January 2014 and ending April 2016. This dataset provides the basis for measuring and comparing the responsiveness of these regulators as per the benchmarks devised in section 2.
Data for measuring responsiveness
Indian regulators issue various instruments, all of which are binding on regulated entities and the public taking regulated actions. SEBI exercises its quasi-legislative powers though different kinds of instruments such as regulations, circulars, general orders and guidelines. While regulations made by SEBI are required to be placed before the Parliament, circulars, general orders and guidelines, are not so required.24 However, all these instruments are regulatory instruments as they are issued in rem and are intended to be binding on a class or classes of participants in the securities markets.
Similarly, RBI issues several instruments such as regulations, circulars, master circulars and master directions. Also, unlike most other regulators which typically exercise powers under one legislation, RBI exercises its powers to issue these instruments under multiple different legislations such as the Reserve Bank of India Act, 1934 (RBI Act), which governs the central bank itself, non-banking financial institutions and some classes of derivatives, the Banking Regulation Act, 1949 (Banking Regulation Act), which governs banks, the Foreign Exchange Management Act, 1999 (FEMA), and the Payment and Settlements Act, 2007 (PSS Act) which governs payment systems.25 The instruments issued by RBI have one or more of the following objectives:
- They are intended to bind a class or classes of regulated entities (namely, banks, non-banking financial institutions or persons authorized to deal in foreign exchange) or their officers, either in relation to their internal affairs or their interaction with their consumers.
- They are intended to bind the public in general in respect of matters regulated by RBI, such as transactions in foreign exchange or in the financial markets that are regulated by RBI, usage of currency notes, etc.
- They announce auctions of government securities, as RBI is also the public debt manager for the Central and State governments.
- They announce credit arrangements availed of or advanced by, the Central Government.
Thus, while some of the instruments issued by RBI are regulatory in nature, some are issued by RBI as an agent for the exercise of the executive powers of the Central Government or State Governments. For the purpose of gaging the responsiveness of RBI as a regulator, we have only taken into account regulatory instruments, that is, the instruments issued in rem and referred to in items 1 and 2 above. While the regulations made by RBI under the RBI Act, FEMA and the PSS Act, are laid before the Parliament, other regulatory instruments which are not termed “regulations" are not so laid.26
TRAI similarly exercises its quasi-legislative powers through different kinds of instruments such as regulations, orders and directions. While orders are used for setting industry tariffs, regulations and directions are used for non-tariff related matters. Regulations made by TRAI are required to be placed before the Parliament. However, orders and directions are not laid before Parliament. Regulations and orders are instruments in rem. On the other hand, directions may be issued to specific service providers, a class of them or even to an individual service provider.27 We take into account regulations, orders and directions issued in rem, that is, to all or a class of service providers.
AERA performs two specific functions in relation to major airports, namely, setting airport-related tariffs and monitoring performance standards specified by the Central Government or any authority authorized by it, for airports. Like TRAI, AERA issues regulations, orders and directions. It performs the tariff-setting function by issuing “orders”. We take into account these tariff-setting orders as the orders pertain to tariff fixation rather than adjudication. These orders are, therefore, legislative in character. The AERA Act requires AERA to conduct public consultations before passing tariff-setting orders. Directions may be issued by AERA to one or more service providers. As in the case of TRAI, directions issued by AERA may, thus be in rem or personam. During the period of study, we came across one direction passed by AERA issued to all service providers. Hence, we have taken this direction into account for the purpose of gaging the responsiveness of AERA. Finally, only regulations issued by AERA are required to be laid before the Parliament.
The multiple instruments issued by the four regulators under study are summarized in Table 8. The instruments highlighted in bold undergo Parliamentary scrutiny, others do not.
|Table 8: Kinds of instruments issued by the four regulators in rem|
|TRAI||Regulations||Tariff –setting order||Directions|
|AERA||Regulations||Tariff –setting orders||Directions|
3.2.1 How many legislative instruments were placed before Parliament?
We studied the different kinds of legislative instruments issued by SEBI, RBI, TRAI and AERA for the period beginning January 2014 and ending April 2016. Table 9 contains our findings:
|Table 9: Instruments issued by SEBI, RBI, TRAI and AERA (1st January 2014-30th April 2016)|
|Circulars (including Master Circulars and Master Directions)||122||1016||0||0|
We find that the four regulators studied, issue a larger number of quasi-legislative instruments which are required to be laid before Parliament. While about twenty-nine (29) percent of the total number of legislative instruments issued by SEBI during the study interval was laid before Parliament, about four (4) percent of the total legislative instruments issued by RBI were laid before the Parliament. Among the infrastructure regulators, forty-six (46) percent of the total legislative instruments issued by TRAI during the study interval were laid before Parliament, and the corresponding percentage for AERA was 0. Therefore, while TRAI fares relatively better on issuing instruments which are to be presented for Parliamentary scrutiny, less than half of the legislative instruments issued by all regulators are placed before Parliament.
3.2.2 How many legislative instruments were preceded by a consultation process?
We then studied whether each of the legislative instruments issued by the four regulators underwent a formal public consultation process of some form before their issuance. We find that SEBI held a formal public consultation process for about ten (10) percent of the legislative instruments issued by it. RBI held public consultations for about two (2) percent of the legislative instruments issued by it. TRAI held a formal public consultation process for about fifty-six (56) percent of the total number of legislative instruments issued by it and the corresponding number for AERA was forty-one (41) percent. Table10 summarizes our findings:
|Table 10: Public consultation for delegated legislation is-sued by the four regulators (1st January 2014-30th April 2016)|
|No. of instruments issued||175||1064||48||70|
|No. of instruments preceded by public consultation||18||14||27||29|
3.2.3 Descriptive analysis of the consultative processes followed by the four regulators
To assess the qualitative aspects of the process and identify whether the process led to the outcomes contemplated in the benchmarks contained in Table 6, we studied the qualitative aspects of the consultation processes followed by SEBI, RBI, TRAI and AERA.
An overview of the consultative processes followed by RBI and SEBI indicate that while the financial sector regulators follow a similar process, there is considerable variation between the processes followed by them and the infrastructure regulators, namely, TRAI and AERA, and among the infrastructure regulators inter se.
The consultative processes followed by SEBI and RBI involve publishing a discussion paper with a fixed time line for submission of public comments. Neither SEBI nor RBI engage in information dissemination exercises when the discussion paper is published or hold oral hearings for public comments. While the consultation papers contain the objective of the proposed regulation and the problem being addressed, the objective is generally worded in general terms such as “in the interest of investors" and to “promote market development". They generally present only one solution and do not contain cost-benefit analyses of multiple possible solutions.
During the consultation process, there is no multi-directional flow of information between the public and SEBI or RBI, or amongst the public inter se. The comments received from the public in response to the consultation paper issued by SEBI are not published. When the final regulation is issued, it is generally accompanied with a statement that SEBI and RBI have considered the representations received. On an average, while SEBI gives about twenty (20) days for the public to comment on the consultation paper issued by it, RBI gives about thirty (30) days. (See Table 11) There is no information in public domain on the nature and subject of representations that were made, the ones which are accepted or the reasons for rejecting those which are not.29 In the case of consultation exercises conducted by SEBI, the time-lag between the date on which the consultation exercise is completed and the date of issuance of the instrument ranges from fifty-five (55) days to six hundred forty-five (645) days. The average time-lag is two hundred and fifty (250) days. In the case of RBI, the corresponding figures are twenty-four (24) days to two thousand two hundred and thirty-two (2232) days and the average time-lag is one thousand one hundred and twenty-eight (1128) days. (See Table 12.)
There is no data in public domain on the capacity building, if any, done by SEBI or RBI to internally to strengthen the consultation exercise or place quality controls on the content of the discussion papers.
On the other hand, TRAI and AERA follow a more detailed process of consultations for regulations and orders compared to the two financial sector regulators studied in this paper. However, TRAI does not generally conduct a formal consultation process before issuing directions.30
In the case of TRAI, often though not always, the process begins with a high-level discussion paper, which highlights the broad issues for consideration.31 This is then followed up with a discussion paper that delves into the details of the proposed regulatory approach. While there is no uniformity in the quality of the consultation paper, the paper is generally structured to include the objective of the proposed intervention, industry practice, developments leading up to the consultation paper and the issues for consultation. Sometimes, the consultation paper also includes data such as global practices in respect of the issues under consideration. While some discussion papers have open-ended questions, others are more exploratory and reflect the regulator's proposed regulatory approach. The discussion papers do not propose multiple options with a cost benefit analysis of each.
In the consultation process followed by TRAI, there is multi-directional flow of information during the consultation process. About twenty one (21) days are given for the first round of comments. In several cases, TRAI has extended the duration for responding to the consultation paper. The comments are put up in public domain as they start flowing in. Approximately seven (7) days are then reserved for allowing the public to offer counter-comments (See Table 11). The counter-comments are also published. The time-lag between the date of completion of the consultation process and the issuance of the legislative instrument ranges from fourteen (14) to two hundred and forty-six (246). The average time-lag is eighty-two (82) days (See Table 12).
The final regulation or order is accompanied with an explanatory memorandum explaining the public consultation process followed prior to the issuance of the instrument. However, the explanatory memorandum does not give specific reasons for acceptance or rejection of some comments over the others.
In the consultative process followed by AERA, a consultation paper is issued by AERA and written feedback is generally sought on the contents thereof. The consultation paper is generally sparse in details and does not clearly specify desired outcomes or objectives. While this is perhaps due to the fact that the role of the authority is largely that of setting tariffs, the consultation papers are generally lacking in data and comparable or alternative scenarios that can facilitate better engagement. There is no multi-directional flow of information and the inputs received are generally displayed on the website of AERA.
There is no data in public domain on the capacity building, if any, done by TRAI or AERA internally to strengthen the consultation exercise or place quality controls on the content of the discussion papers.
|Table 11: Time given for responding to consultation papers (in days)|
|Table 12: Time-lag between close of consultation and issuance of instrument (in days)|
3.3 Measuring outcomes
On the basis of the measures listed in Table 6, we have assigned scores to SEBI, RBI, AERA and TRAI, depending on whether they have achieved the outputs indicated for each benchmark. Since information relating to the internal capacity building for each of these regulators is not available in public domain, we exclude benchmarks relating to internal capacity building by these regulators and measure responsiveness on benchmarks 10-18.
We consider information available in the public domain to the exclusion of any non-public information. Accordingly, we do not consider information not available on the website of the regulatory agency. Where no data on any other benchmark relating to a regulator is available in public, we assign a score of 0 against the relevant benchmark.
For building the required dataset for this study, we gathered all relevant information from the website of the relevant regulator.32 This included a list of all legislative instruments issued between January 2014 and April 2016 along with any supplementary documentation related to the instrument. SEBI and TRAI publish consultation papers for legislative instruments without expressly linking the final instrument to the explanatory documents/ consultation papers/ comments. We have therefore attributed associated documents by individually referencing each explanatory document to the legislative instrument.
For each benchmark where the regulator satisfies the requirements completely (a “yes”), we assign a score of one (1). The highest achievable score for each benchmark is, therefore, one (1). Where an output has been achieved partially, we assign a proportionate score in percentage terms out of a total score of 1. For example, if 56.55% of the legislative instruments issued by TRAI were preceded by public consultation, we assign a score of 0.57 (after rounding o to the closest whole number) to TRAI on the relevant benchmark.
Table 13 provides details of the methods used to measure regulators on each bench-mark. The outputs and scores for each of the four regulators are reflected in Table 14.
|Table 13: Methods for measuring responsiveness of SEBI, RBI, TRAI and AERA (1st January 2014-30th April 2016)|
|1.||Does the agency publish explanatory documents?33||We compiled a data set of legislative instruments issued by each regulator, and manually identified consultation papers preceding each instrument. The total number of consultation papers is then divided by the number of instruments issued by the regulator, and multiplied by 100 to derive a percentage. The final score is expressed as a percentage of 1.|
|2||Does the agency pro-actively communicate with groups most likely to be affected?||We attempted to identify (a) specific enumeration of issues/ concerns for affected groups in explanatory documents, and (b) general communication strategy documents, if any, issued by each regulator, that require targeted outreach with affected groups.|
|3||Does the agency publish comments received before issuing the final regulation?||We created a data set of comments published on each regulator's website and compared the date of publication of the comments with the date of publication of the instrument. A regulator that published comments received before issuing the final regulation in every case received a score of 1.|
|4||Does the agency provide time for counter-comments?||We checked the website of the regulator for any time given, especially the documents that enumerated summarized comments received. A regulator that provided time for counter comments with respect to each instrument issued by it, received a score of 1.|
|5||Does the agency provide a response to the comments received?||We checked the website of the regulator for responses to comments. A regulator that responded to comments with respect to every instrument scored 1.|
|6||Does the agency provide more than one method of receiving feedback?||We (a) checked the website of the regulator for general guidances on mechanisms of submitting feedback, (b) checked the explanatory documents that specified the method of feedback, and (c) identified specific instruments for which feedback was solicited in more than one way. A regulator that provided more than one method of providing feedback for every instrument scored 1.|
|7||Does the agency publish a statement of when the decisions will be made based on the consultative process?||The explanatory documents and draft regulations were individually checked to examine if this information was available. A regulator that provided this information for every instrument issued within the period of study, scored 1.|
|8||Does the agency publish the name of the individual in charge of the consultative process?||The explanatory documents and draft regulations were individually checked to examine if this information was available. A regulator that provided this information for every instrument issued within the period of study, scored 1.|
|9||Does the agency publish the source of the legal power to issue the proposed regulation?||The explanatory documents and draft regulations were individually checked to examine if this information was available. A regulator that provided this information for every instrument issued within the period of study, scored 1.|
|10||Does the agency give adequate time for responding to the draft proposed by it?34||We computed the average time provided for responding to explanatory documents/ draft instruments for all instruments issued by the regulator during this period. The time provided included the initial time provided for responding to explanatory documents and any subsequent extensions provided. A regulator scored 1 on this benchmark if it provided at least 30 days to respond to comments for every explanatory document/ draft instrument.|
|Table 14: Outputs and scores for responsiveness of SEBI, RBI, TRAI and AERA (1st January 2014-30th April 2016)|
|1.||Does the agency publish explanatory documents? 35||0.136||0.0237||0.5738||0.4139|
|2.||Does the agency pro-actively communicate with groups most likely to be affected?||0||0||0||0|
|3.||Does the agency publish Comments received before issuing the final regulation?||0||0||1||1|
|4.||Does the agency provide time for counter-comments?||0||0||1||0|
|5.||Does the agency provide a response to the comments received?||0||0||0||0|
|6.||Does the agency provide more than one method of receiving feedback?||0||0||1||0|
|7.||Does the agency publish a statement of when the decisions will be made based on the consultative process?||0||0||0||0|
|8.||Does the agency publish the name of the individual in charge of the consultative process?||0||0||0||0|
|9.||Does the agency publish the source of the legal power to issue the proposed regulation?||1||0||1||1|
|10||Does the agency give adequate time for responding to the draft proposed by it?||040||041||042||043|
We find that on a score of 10, while TRAI scores close to the half-way mark, the other regulators lag behind. TRAI and AERA score much higher compared to financial sector regulators. We attribute this to the presence of legal requirements for responsiveness in the regulation-making process of these two regulators.
A disaggregated examination of the scores reveals uniform non-responsiveness across many benchmarks such as whether the regulatory agency responds to comments received, intimation regarding timelines for decision making, and importantly the adequacy of time provided for responding to explanatory documents/ draft instruments. This indicates that though these agencies follow a consultative process, there is a uniform lack of effort in making the process a useful method of information collection and deliberation.
Publication of explanatory documents, an important initial step for initiating any responsive decision-making is mostly not done. While TRAI and AERA publish such documents, they only do so for approximately half of all legislative instruments. RBI and SEBI do so to a negligible extent. Only TRAI and AERA publish comments received by them, and only TRAI publishes counter comments received by them. While this facilitates discourse amongst affected/ interested participants, TRAI itself remains above the fray.
Scores for each of these benchmarks reveal the low levels of responsiveness amongst Indian regulators. Importantly, we believe this measurement provides objective measures that both regulators and scholars can utilize to measure the responsiveness of regulators.
By measuring the “responsiveness” of four Indian regulators on a rules and outcomes-based axis, this paper makes two specific contributions to the discourse on rule of law among regulators and regulatory governance issues in emerging economies, and specifically in India.
First, it provides an empirical framework for assessing responsiveness of regulatory agencies. Rule of law is increasingly occupying an important place in the literature focusing on development. In particular, the exponential numbers of expertise-oriented unelected regulatory agencies around the world, coupled with the deference given to them, has motivated new fields of inquiry on the links between administrative law and the functioning of regulatory agencies in sectors such as finance which are largely regulated by such agencies. Rule of law indices constructed by multilateral agencies around the world feature responsiveness of regulators as an integral component of such indices.44 Many of these agencies conduct cross-country comparisons and rate them on the basis of a survey methodology. While surveys may be the most efficient research methodology to compare distinct countries across a common set of parameters, an empirical framework of the kind designed in this paper would help in making more precise comparisons, and avoid biases that make surveys a blunt assessment tool.
The empirical framework designed in this paper can be scaled for assessing the responsiveness of other regulatory agencies in India and elsewhere. This can feed into an initiative to measure the performance of regulatory agencies by the regulator itself, external audit agencies such as the Comptroller and Auditor General of India and the Government Audit Office in the United Kingdom, the government as the principal, the citizens themselves as well global governance monitors such as the World Bank.
Such performance evaluation based on empirical frameworks will, in turn, incentivise regulators to publish data which the external agencies can rely on when assessing regulatory quality across countries. In countries where the parliamentary oversight mechanisms are not strong, such evaluations will act as feedback loops and information to them.
Second, by applying such as empirical framework of assessment to four regulators in India, the paper demonstrates variance in the responsiveness of Indian regulatory agencies. This fills an important gap in understanding regulatory conduct in a country where there are no uniform standards governing the conduct of regulators. The paper finds that there are two factors which contribute to this variance: the absence or weakness of the laws governing the conduct of regulators, and the weakness of oversight over regulatory agencies.
Finally, our finding that regulatory agencies whose governing laws mandate responsiveness end up being more responsive, holds insights on legal reforms for better regulatory governance. While efforts have been ongoing in reforming legal frameworks governing Indian regulators, the political economy of such reforms needs to be augmented with regular empirical assessments of the kind provided in this paper.
1 Benjamin I. Page & Robert Y. Shapiro, The Effects of Public Opinion on Policy, 77(1) American Political Science Review, 175-190 (1983) (noting that there is no shortage to empirical theorizing about the extent to which policy does or does not respond to public opinion and for a review of the literature on the responsiveness of government policy to citizens’ preferences).
2 Cary Coglianese et al., Transparency and Public Participation in the Federal Rulemaking Process: Recommendations for the New Administration, 77(4) The George Washington Law Review, 924-972 (2009) (noting the pros and cons of public participation in the making of delegated legislation).
3 Regulatory agencies that perform all three functions of the state - regulation-making, monitoring and adjudication have been included. Pure standard or tariff setting bodies have not been included.
4 See the observations of the Supreme Court of India in Cellular Operators Association of India and Others v. Telecom Regulatory Authority of India (May 2016, yet to be reported), noting that in the absence of the specific statute requiring that a regulator must follow the principles of natural justice while making delegated legislation, the court cannot read such duty into the law, and urging the Parliament to frame a “a legislation along the lines of the U.S. Administrative Procedure Act (with certain well defined exceptions) by which all subordinate legislation is subject to a transparent process by which due consultations with all stakeholders are held, and the rule or regulation making power is exercised after due consideration of all stakeholders’ submissions, together with an explanatory memorandum which broadly takes into account what they have said and the reasons for agreeing or disagreeing with them.”
5 See the Report of the Financial Sector Legislative Reforms Commission (FSLRC) (2013), which contains extensive observations on the performance of the financial sector regulators in India, noting that: “the present system of financial accounting of the regulator is focused primarily on the reporting of expenditures incurred by the regulator under various heads. This, according to the Commission, does not constitute a sufficient test of the fulfillment of regulatory objectives or the assessment of the regulator’s performance. Therefore, there is need to require regulators to adhere to a more comprehensive system of measuring their performance.”
6 This, however, does not explain measures regulators take to be responsive in the absence of any legal requirement.
7 John Braithwaite, Responsive Regulation and Developing Economies, World Development Vol. 34, No. 5, pp. 884–898 (2006) (noting that responsive regulation is an approach designed in developed economies and most of the critiques of it are also framed within the context of developed economies.)
8 See, for instance, Navroz K. Dubash and Bronwen Morgan, The Rise of the Regulatory State of the South (2013) (where the authors examined regulatory agencies in the infrastructure sector in the global south in the context of regulatory reform over the last two decades); and ibid (dealing, in part, with strategies to implement “responsive” regulation in States with weak regulatory capacity)
9 See, for instance, Rahul Mukherji, Regulatory Evolution in Indian Telecommunications, ISAS Working Paper No.7 (2006); and Rahul Mukherji, Interests, Wireless Technology, and Institutional Change: From Government Monopoly to Regulated Competition in Indian Telecommunications the evolution of the private telecommunications industry and its regulator, The Journal of Asian Studies Vol. 68, No. 2 (May) 2009: 491–517 (focusing on the evolution of the private telecommunications industry and its regulator)
10 See also Shantanu Dixit et al, Electricity Governance Toolkit: Benchmarking Best Practice and Promoting Accountability in the Electricity Sector, Technical Report (url: http://pdf.usaid.gov/pdf_docs/Pnadm629.pdf last accessed: May 1, 2017) (focusing on developing indicators for assessing the overall performance of electricity regulators in India).
11 Philip Selznick, The Moral Commonwealth (1994) (describing responsiveness of the State as involving outreach and empowerment).
12 Ian Ayres and John Braithwhite, Responsive Regulation: Transcending the Deregulation Debate, (1992) (conceives responsive regulation as a different paradigmatic framework as opposed to the extreme orthodoxies of strong regulation and deregulation: “…regulation be responsive to industry structure in that different structures will be conducive to different degrees and forms of regulation”, p.4).
13 Jon Stern and Stuart Holder, Regulatory Governance: Criteria For Assessing The Performance Of Regulatory Systems - An Application to Infrastructure in the Developing Countries of Asia (1999)
14 S. Dixit S, NK Dubash, C Maurer, S Nakhooda S, Electricity Governance Toolkit: Benchmarking Best Practice & Promoting Accountability in the Electricity Sector (2007)
15 C Coglianese, H Kilmartin, E Mendelson, Transparency and Public Participation in the Federal Rulemaking Process: Recommendations for the New Administration (2009) (Given the legislative mandate of public consultation contained in the Administrative Procedure Act, 1946 in the United States, this paper assumes the existence of a consultation process).
16 Oxford Pro Bono Publico, A Comparative Survey of Procedures for PublicParticipation in the Law Making Process (2011).
17 Organisation for Economic Co-operation and Development, The Governance of Regulators, OECD Best Principles for Regulatory Policy (2014).
18 We are unable to study measures 1-8 owing to the lack of relevant information that is available in the public domain.
19 SEBI has initiated the process of publishing board meeting agendas in advance, publishing minutes of its board meetings, and public consultations on draft regulations, all over the last 2-3 years.
20 Stanley A. Kochanek, Regulation and Liberalization Theology in India (1986).
21 Section 11(4) of the TRAI law states: “(4) The Authority shall ensure transparency while exercising its powers and discharging its functions.”
22 Section 13(4) of the AERA law states:
“(4) The Authority shall ensure transparency while exercising its powers and dis-charging its functions, inter alia, -
(a) by holding due consultations with all stake-holders with the airport;
(b) by allowing all stake-holders to make their submissions to the authority; and by making all decisions of the authority fully documented and explained.”
23 See the observations of the Supreme Court of India in COAI v. TRAI (2015) (yet to be reported) The Securities Exchange Board of India Act, 1992 requires that all regulations made by SEBI must be laid before both the House of Parliament. The SEBI Act additionally empowers SEBI to protect the interests of investors in securities and to promote the development of, and to regulate the securities market, by such measures as it thinks fit. This wide power enables SEBI to perform some of its quasi-legislative functions through instruments such as circulars.
24 The Securities Exchange Board of India Act, 1992 requires that all regulations made by SEBI must be laid before both the House of Parliament. The SEBI Act additionally empowers SEBI to to protect the interests of investors in securities and to promote the development of, and to regulate the securities market, by such measures as it thinks fit. This wide power enables SEBI to perform some of its quasi-legislative functions through instruments such as circulars.
25 While TRAI and AERA exercise powers conferred on them under their mother statutes, SEBI exercises powers conferred on it under the SEBI Act, the Securities Contracts Regulation Act, 1957 and the Companies Act, 2013.
26 Sections 58 of the RBI Act, 38 of the PSS Act and 48 of FEMA require only regulations” to be laid before each House of Parliament. Parliament may or may not take up such regulations for scrutiny. This legal provision is standard across all independent regulatory agencies.
27 The Telecom Regulatory Authority of India Act, 1997 requires that all regulations made by TRAI must be laid before both the House of Parliament. The TRAI Act additionally empowers TRAI to issue orders for tariff -setting and directions for the performance of its functions.
28 Orders refers to orders in rem.
29 Bhargavi Zaveri, Participatory Governance in Regulation-making: How to make it work?, (2016) (The paper highlights an instance where a discussion paper issued by SEBI was identical to the text of the final regulations issued on at least two occasions.)
30 We came across a draft direction which was put up for consultation on January 20, 2016. As of the date of this writing, a direction has not been issued pursuant to the draft. We came across only one direction issued by AERA till date.
31 This is based on an interview with an employee of TRAI.
33 Explanatory documents refer to discussion papers and/ or draft regulations.
34 The pre-legislative consultative policy issued by a Committee of Secretaries of the Central Government requires a minimum of 30 days for responding to a draft published by the regulator. Best practice documents issued by OECD also warrant a time of not less than 30 days. Hence, we used 30 days as a benchmark of adequate time.
35 Explanatory documents refer to discussion papers and/ or draft regulations.
36 10% of legislative instruments were preceded by explanatory documents
37 2.09% of legislative instruments were preceded by explanatory documents.
38 56.55% of legislative instruments were preceded by explanatory documents.
39 41.42% of legislative instruments were preceded by explanatory documents.
40 SEBI allows an average of 20 days for responding.
41 RBI allows an average time of 29.6 days for responding.
42 TRAI allows an average of 27.41 days for responding.
43 AERA allows an average of 17 days for responding.
44 Ponce J. Botero, Measuring the Rule of Law (2011).