By Richard M. Rossow —
- Status: In Progress – A February 2014 note from the Ministry of Law & Justice called on regulators and government agencies to adopt a 30-day notification period. But it is not being honored.
- Difficulty: Medium – Should not require a separate statute but will require consistent pressure on ministries and regulators.
This is the third installment in a series of articles on the Modi Reforms Scorecard by the staff and experts at the Wadhwani Chair in U.S.-India Policy. The series seeks to provide analysis on why reforms marked as “Incomplete” or “In Progress” have not been completed, and what impact such reforms could have on specific sectors or the economy at large.
Regulatory consistency is a crucial factor when companies look at India’s business environment. Quick, deep, and short-sighted regulatory reforms make long-term business planning virtually impossible. This ability to plan is crucial for a firm’s leadership to make the case for new investments and growth plans. While regulatory reform itself is inevitable, stakeholder engagement is an important way to boost investors’ confidence that their opinions matter, and that the government is keen to balance interests. The Indian government and regulators need to commit themselves to stronger stakeholder engagement and adopt a minimum 30-day notice & comment period for new regulations.
Despite strong anecdotal evidence about the impact of regulatory consistency on investor perceptions, it is more difficult to capture in traditional assessments such as the World Bank’s annual “Doing Business” report. Government bodies and industry regulators must be prepared to act on imbalances in the market. It not feasible to build a “model practice” for the number of regulatory interventions. However, governments and regulators should strive to make sure the method for adoption new regulations is thoughtful and allows for the engagement of all stakeholders whenever possible. The Organization for Economic Cooperation and Development has a helpful brief on public consultation, including some “best practices” adopted in key markets.
In March 2013, the Financial Sector Legislative Reforms Commission urged the Indian government to establish mandatory notice and comment periods for regulations, as well as to conduct cost-benefit analyses. A year later the Ministry of Law issued a letter to the other ministries, pressing them to offer draft laws for public consultation (which has since been removed from the ministry’s website). In 2016, the Expert Committee on Prior Permissions and Regulatory Mechanism highlighted the damaging impact of bad regulation and went so far as to call for a new “Standing Committee on Regulatory Affairs” to measure the impact of new regulations.
There are certainly instances of regulatory over-reach that crippled key industries. Examples include the Securities Exchange Board of India’s ban of entry loads for mutual funds in 2009, which triggered a steep decline in the sector’s funds-under-management, or the Insurance Regulatory and Development Authority of India’s stinging re-regulation of unit-linked insurance products in 2010, which triggered a massive retrenchment of the life insurance industry (which led to this interesting advertisement by the regulator, saving a customer that a life insurer had pushed out of an airplane).
In the chart below, we look at the average number of days that four key industry regulators have laid out in recent draft regulations for stakeholder input. Not one of them came close to the 30-day notification. Sometimes, regulations are issued with as little as seven days for stakeholders to generate a response.
The government of India needs to press its agencies and regulators to engage stakeholders in a more meaningful fashion. There cannot be a “one size fits all” in terms of the quantity or type of regulation. But if investors need to know that their views are considered important and will be considered as regulations are developed.
Richard M. Rossow is a senior fellow and holds the Wadhwani Chair in U.S.-India Policy Studies at CSIS.