Spotlight on India’s regulatory framework

The Securities and Exchange Board of India is among the most empowered regulators in the world today, with powers of search, seizure, raids and arrest. It also has an expensive surveillance system to catch suspicious trading activity and price manipulation on a real-time basis. Despite this the regulator has been silent through different political regimes.

Over the past two decades, SEBI has either operated on the directions of the finance ministry (especially during the second term of the United Progressive Alliance) or its activities have flown below the radar of any public or political scrutiny, whether it was the the co-location (colo) scam at the National Stock Exchange (NSE) or the Satyam scandal. Mahua Moitra, Member of Parliament (MP) from the Trinamool Congress, had raised pertinent questions in Parliament about the Adani group and the astonishing run-up in the stock prices of all its companies over the past two years, but the Securities and Exchange Board of India (SEBI) appears to have studiously looked away. The Trinamool MP correctly asked how a massive follow-on public offer (FPO) of Rs 20,000 crore by Adani Enterprises Ltd was allowed by the regulator, despite the ongoing investigation (the issue was pulled out by the Adani group a day after a ‘managed’ subscription) and how could the group claim that there was no pending investigation against it. SEBI still has not answered the key question — why did it not investigate Adani so far? Instead of being proactive the regulatory body has been reactive with a bland response “will take note if any information comes to our notice” and that too because its credibility is at stake.

With allegations of “Sleeping SEBI” echoing all across, it’s time now to take a look at why the regulatory framework is failing in India. The intention behind creating independent regulatory commissions was to introduce transparency in government decisions. As the economy grew specially after liberalisation, important assets like coal, land, electricity, telecommunications, spectrum, petroleum, natural gas, stock markets, pension funds and their governance, airport facilities etc came under the purview of the regulatory framework. Take the example of TRAI (Telecom Regulatory Authority of India) which is recommendatory, while the electricity commissions are still trying to get authority over their forward markets. Penal powers for non-compliance are weak in most cases except SEBI and Competition Commission, the biggest irony being that SEBI in Adani’s case has been perceived as dragging its feet for reasons unknown.

Why is there an impression that self-regulators do not perform their functions satisfactorily? There are allegations of malfeasance against most of them. Professional ones like ICAI or MCI are not known for stringent actions against members flouting the norms. The sports organisations on the other hand tend to have people running them for their entire life and there are doubts about their financial integrity. Statutory regulators appointed by the government also do not enjoy an infallible position. In case of electricity, telecommunications, competition, securities, the appeals against the orders of the concerned commissions are to Appellate Tribunals and not directly to the High Courts. This has often led to delays and dilution of the original intent of the Commission.

In many instances government departments, specially in state governments, get regulatory commissions to act at the behest of the government and not independently. One reason for this is the selection process of te Chairman and members of the regulatory bodies. Selection committees are invariably composed of administrators, many from the concerned ministries, invariably after retirement. This practice goes against the original intent of statutory independent regulation. Will appointees like these not bring an ingrained culture of subservience to the government?

With most regulatory bodies, the staff is on deputation from other departments of the government. They do not regard themselves as having a career in regulation. Few, if any, rise to become members or chairmen of these bodies. An often-made allegation is that these regulatory bodies are just another government layer. This is because key positions in these bodies become post-retirement prerequisites for retiring bureaucrats and government servants, resulting in little independence, courage or knowledge in regulating the concerned sectors. It’s time now to restore the credibility of the regulators as it impacts not only the image of the government, but India’s growth story as well.

Neelu Vyas is a senior television anchor and consulting editor with Satya Hindi

Published on: Wednesday, February 15, 2023, 06:00 AM IST