Thursday, February 16, 2006

Regulation reality in India!

Most pro-market people are against regulations and indeed it is fashionable in this day and age to be against regulations. But what do regulations mean in an operational context? Here is a short note to illuminate more on it.

Acts are framed in the Parliament. Each Act (usually) denotes a particular agency to have certain power to make rules to enforce the Act. The Act could also be enforced through the court. Violation of contracts would involve the court (these are legislations) whereas the requirement to open a shop usually involves rules framed by a government department (executive rules). So while one is speaking against regulations, one should be clear what kind of regulations is one against.

I understand that to most of us the Parliament is a black-box that churns out Acts. Let me recap the process of framing an Act in its entirety, based on my on-field experience. Comments are welcome for any egregious errors.
  • First, you have the crafting of bill by the legal department supposedly based on department expertise, political will, and discussions with stakeholders. Involvement of stakeholders is a recent and not-too-often phenomenon.
  • Second, they are discussed (that is an exaggeration) in the parliament.
  • Once it is passed, it becomes an Act but is still not enforceable unless the rules (basically the rules framed by the government department concerned with the Act, an example is amount of fine) are framed and published in the Gazette of India.
My problems with this process are threefold.
The policies and bills are done in a knowledge vacuum. There is no consideration of research (and by research, I do not mean newspaper reports) regarding the state of reality. Bureaucratic ideas and political determination (interest groups have a stake through the political candidate) are the key drivers of the bill. There are sordid stories of the bills being rehashed with just changes in keywords, but let me save those inside stories for later. There is no cost-benefit analysis of the regulations framed. There are no clear standards by which you can measure the efficacy or "implementability" of an Act. Moreover, there is no feedback mechanism for knowing how the Acts have fared.

The Acts are way too abstruse for analysis by journalists or serious media professionals or even educated citizens. Moreover, they are not easily available.

The executive rules are not subject to public discussion which I believe substantially add to the sting of legislations. Often this happens because unilateral powers are granted to an agency head which look reasonable in the Bill but look devastating once the executive rules are framed.

There are other sophisticated considerations like sunset laws (expiry date for some regulations); risk-assessment tests for Acts like the Prevention of Food Adulteration Act; etc.
In short, legislation-crafting in India is a botched-up process, save a few exceptional departments. That only implies there is an unexploited market in the future for developing legislations based on sound research and sophisticated analysis.

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