Free Enterprise Vs. Regulation
Our private sector was small till recently. Perhaps we did not have the need for multiple regulators earlier. So the talent for regulation — the human capital — is sort of limited. That is perhaps one of the reasons that some regulator might go two steps or three steps too far because he wants to be seen as a conservative regulator.
Yes, it is indeed a danger. You picked a very good point, which is that some time, the lack of competence is covered up by over-regulation. “I don’t have guys who can understand the risk of derivative contracts so let me get it banned.” This sort of thing happens in every country.
First, we have to accept that the regulatory sector should have some knowledge of the industry itself. Having a regulator who has no understanding of the industry is problematic. At the same time, having regulators who are conflicted because they are in bed with the industry is also problematic. So what you need is a way the regulator can understand about the industry; perhaps pick people from the industry for certain specialised positions. But we have to make sure that their allegiance now shifts to the regulator rather than stay with the industry. That’s a difficult task. You know, it often implies strictures on what you can do after you have left the regulator.
For instance, we should be able to require that former regulators cannot lobby their ministry or take up any position within the industry for profit for say, two years, after leaving the regulator. We need clean rules like that. There is always this spectre of an official, immediately after leaving the regulator, working for a large company that benefits from the regulation. That is problematic.
The problem with completely banning people from working in the private sector after working at the regulator is that the regulator will have to compensate for the lost opportunity. It requires the pay scales to be much higher and that will be a little too much in a country like ours.
The 2G scam that is being talked about a lot and a few other scandals have shown that businessmen ingratiate themselves to the government and get things done their way. This is sort of a regulatory failure. How do you firewall the regulator from such influences?
The issue here is that it is very hard for the public sector to be much cleaner than what the private sector will allow it to be. We have to accept that it is not just a problem of the public sector or a problem of the politicians. Corruption does not emerge in a vacuum. It is on both sides — the bribe-giver and the bribe-taker. We focus too much on the political side. What about the private sector that is trying to influence the politicians?
The current focus and scrutiny of such practices is long overdue. It is also the sign of a very healthy society. I am encouraged by the fact that the government has said that we will take the case to where it leads. In which previous regime have we seen a minister being jailed?
Of course, what we want to signal is that there will be no tolerance of this industrial scale corruption. The broad message has to be that we have to work to create processes and stick to them. Look at the difference between 2G and 3G. It is the fact that 3G [auction] worked so well that exposed what happened in 2G. That shows we can have the level of transparency that can overcome the potential for corruption.
If you look at the small guys trying to do business in India, they have to go through dozens of processes, bribe dozens of officials and handle police intervention. That, itself, is a failure of the free market. How can we stop the State from derailing the basic human right of somebody to earn a living?
I think it is a process rather than a one-off. We constantly need to find way to make this State an enabling rather than a disabling State. The change in mindset we need to see is that free enterprise is generally quite good. Freeing up restrictions is very, very important. Let us work on it. And understand that starting an enterprise is not a bad thing.
The question that regulators must constantly ask before making a regulation is, ‘will this lead to a better environment or end up stoking more corruption?’
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