The Role of Sectoral Regulators in Policymaking

Policymakers find significant advantages in governance through a regulator where they can build expertise matching the complexities of the task and evolve processes to enforce authority rapidly and proactively take decisions in larger interests.

Policy and regulation can have a significant impact on businesses. Exactly three decades ago, beginning with 1991, the Government had made some radical changes in its policies related to foreign trade, Foreign Direct Investment, exchange rate, industry, fiscal discipline etc. Termed as liberalisation, this was aimed at ending the licence-permit raj by decreasing the government intervention in the business, thereby pushing economic growth through reforms. This opened up the country to the global economy and helped towards creating a more competitive environment in the economy and improved the productivity and efficiency of the system. The shift in the approach necessitated the regulation of sectors where private operators were permitted. Following the broad model adopted by several countries, India established independent regulators to guarantee a level playing field for public and private agencies and to ensure their independence from government departments. It established independent regulators through statutes in a variety of sectors such as electricity, telecommunications, insurance, securities market, and oil and gas.

Policymakers find significant advantages in governance through a regulator where they can build expertise matching the complexities of the task and evolve processes to enforce authority rapidly and proactively take decisions in larger interests.

Some of the most important regulators in India are:

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RBI – Reserve Bank of India

Being a central bank of India, RBI serves a critical role in regulating the financial transactions in the country. Some of the important functions of RBI are listed below:

The Issuer of Bank Notes: The most important function of RBI is the issuance of currency notes and coins, except the one rupee note and coin which are issued by the Ministry of Finance. All other notes bear the signature of the RBI Governor. However, the agency of distribution of all notes and coins issued by the Government of India is the Reserve Bank of India.

Banker to the Government: Another chief function of RBI is that it takes care of the banking needs of the government, which includes maintaining & operating the deposit accounts of the government, collecting the receipts of funds, and making payments on behalf of the Government of India. It also represents the Indian Government, as a member of the International Monetary Fund and the World Bank.

Custodian of Cash Reserves of Commercial Banks: The commercial banks are required to maintain the cash reserves at a rate decided by the RBI in its monetary policy.

Custodian of Foreign Exchange Reserve: Another of the important functions of RBI is maintaining a reserve of foreign currencies that enables the RBI to deal with any crisis situation.

Lender of the Last Resort: Often regarded as the banker of banks, the RBI acts as a parent to all commercial banks in India. Thus, it becomes the lender of the last resort for all banks when they are in a crisis situation. RBI helps them by lending money, although at higher RoI, to sail through the tide of financial difficulties.

Controller of Credit: RBI controls the credit created by the commercial banks in India, in accordance with the economic priorities of the government of India. RBI uses quantitative and qualitative methods to control and regulate the flow of money in the market. These are implemented by announcing monetary policies at regular intervals. The monetary policy involves the management of interest rates and money supply. The central bank of India tweaks the money supply to achieve objectives such as liquidity, inflation, and consumption.

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SEBI – Securities and Exchange Board of India

SEBI acts as a watchdog for all the capital market participants and its main purpose is to provide such an environment for the financial market enthusiasts that facilitate efficient and smooth working of the securities market. To make this happen, it ensures that the three main participants of the financial market are taken care of, i.e. issuers of securities, investor, and financial intermediaries. Its functions include

Designing guidelines and code of conduct for the proper functioning of financial intermediaries

Regulation of takeover of companies

Conducting inquiries and audit of exchanges

Registration of brokers, sub-brokers, merchant bankers etc.

Checking price rigging

Prevent insider trading

Create awareness among investors

Prohibit fraudulent and unfair trade practices

Levying of fees

Performing and exercising powers

IRDAI – Insurance Regulatory and Development Authority of India

The Insurance Regulatory and Development Authority is the main organisation or supervisory body that regulates the insurance sector in the country. It sets rules and regulations for the functioning of the insurance industry. Its sole purpose is to protect the interest of policyholders and to develop the industry on the whole. IRDAI

Issues certificate of registration to new insurance companies

Sets rules and regulations to ensure the interests of the policyholder are taken care of

Monitors all claims are settled in all fairness and that no insurer will deny any claim on their own free will

Regulates the code of conduct of the insurance companies, insurance intermediaries, and others associated with the insurance industry

Provides solutions in case of disputes through the IRDA ombudsman

Controls and regulates the rates of insurance to prevent unwanted price hikes in the insurance premium

Sets the minimum percentage limit of insurance companies for General and Life Insurance, thereby developing both urban and rural sectors

AMFI – Association of Mutual Funds in India

AMFI, The Association of Mutual Funds in India, a non-profit government organization. SEBI regulates it primarily to maintaining a Mutual Fund industry that is run across ethical lines. AMFI is mandated to

To define as well as maintain high professional and ethical standards.

These standards are to be defined and maintained in all areas of operation.

To recommend and promote best business practices as well as code of conduct. These are to be followed by members and others. They are engaged in the activities of mutual fund and asset management. Also, bodies like agencies connected or involved in the field of capital markets and financial services.

To interact and represent SEBI on all matters. On matters that concern the industry of mutual fund

To represent to the Government, RBI as well as other regulatory bodies. On all matters that relate to the industry of mutual fund

Undertake a nationwide investor awareness program. This program intends to promote an understanding of mutual funds.

Disseminate information on the Mutual Fund Industry. To undertake studies and research either directly or along with other bodies.

Regulate the conduct of distributors. This conduct includes disciplinary actions (cancellation of ARN) for any violations.

Protect and secure investor’s coupled with unitholder’s interest

TRAI – Telecom Regulatory Authority of India

The Telecom Regulatory Authority of India (TRAI) was set up in order to have a suitable environment for the growth of the telecommunications industry in the country and be a part of the global information society. It is a statutory body and regulates the telecommunications sector in the country. TRAI

i. Ensure compliance of terms and conditions of license

The TRAI has two-fold options to ‘ensure’ compliance –
a. It can either issue directions or

b. Recommend termination of license for non-compliance.

TRAI has limited powers in this regard because any action under the license can only be taken by the licensor. But TRAI has the freedom to issue any kind of directions to the service providers.

ii. Fix the terms and conditions of inter-connectivity between the service providers, irrespective of the terms of the license issued prior to the TRAI Amendment Act 2000

This provision makes it compulsory for the TRAI to determine the exact terms and conditions rather than mere principles for interconnection between two networks and does away with the terms of the licenses issued by the Union Government in which it is specifically stated that the terms of the interconnection would be specified by the government. However, this interconnection agreement is still not recognized as a commercial agreement to be reached between two service providers within the framework provided by law. It would have been more beneficial if TRAI had been vested with the power to formulate principles on the basis of which interconnection agreements would be entered into between service providers and also act as a supervising body to monitor the agreement taking place between them in order to ensure a fair negotiation.

iii. Ensure technical compatibility and effective inter-connection between different service providers

This clause not only ensures technical compatibility between the networks, but also includes the function of making sure that there is ‘effective interconnection’ covering commercial aspects of interconnection as well.

iv. Regulate arrangements amongst service providers for sharing their revenue derived from providing telecommunication services

The scope of this particular clause is not clear. From a cursory reading of the clause it seems that the service providers do not need prior consent of TRAI regarding the above mentioned arrangements but TRAI does seem to have the power to direct the service providers to alter the terms and conditions agreed to between them.

v. Lay down the standards of quality of service to be provided by the service providers to ensure the quality of service and conduct periodic survey of such service providers so as to protect the interest of the consumers of telecommunication service

The function vested in this clause seems to collide with the powers of the licensor under the terms of the license agreements. The only specific guideline for the exercise of this function is the protection of the interest of the consumers.

vi. Lay down and ensure the time period for providing local and long distance circuits of telecommunication between different service providers

This function is linked with the function of drafting the terms and conditions for the provision of interconnection between the service providers and to make sure that there is effective interconnection between service providers.

vii. Maintain register of interconnection agreements and of all other matters as may be provided in the regulations

TRAI must keep a register of interconnection agreements and agreements relating to other matters specified in the regulations which are open for inspection by any member of the public on payment of such fee and compliance with such other requirements as may be provided in the regulations.

viii. Ensure effective compliance of universal service obligation

This is the only place where the term ‘universal service obligation’ is being used in a statute governing the telecom sector. There is no clear definition provided as to what constitutes ‘universal service obligation’ other than National Telecom Policy 1999. The concept of universal service obligation is to make available the economic and social opportunities being offered by modern communities to all.

ix. Levy fees and other charges at such rates and in respect of such services as may be determined by regulations.

x. Notwithstanding anything contained in the Telegraph Act 1885, the TRAI may, from time to time, by order, notify in the Official Gazette the rates at which the telecommunication services within and outside India shall be provided including the rates at which messages shall be transmitted to any country outside India. The TRAI may notify different rates for different persons or class of persons for similar telecommunication services after recording the reasons.

CDSCO – Central Drugs Standard Control Organisation

The Central Drugs Standard Control Organization (CDSCO) is the national regulatory body for Indian pharmaceuticals and medical devices, and serves parallel function to the European Medicines agency of the European Union, the Japan, the Foods & Drugs Administration of the United states and the Medicines and Healthcare products Regulatory agency of the united Kingdom.

The Central Drugs Standard Control Organization (CDSCO) is the Central Drug Authority for Discharging functions assigned to the Central Government under the Drugs and Cosmetics Act. CDSCO Reports to Drug Controller General of India (DCGI). Major Role of CDSCO:

Under the Drug and Cosmetics Act, the regulation of manufacture, sale and distribution of Drugs is primarily the concern of the State authorities while the CDSCO Authorities are responsible for approval of New Drugs

To Conduct Clinical Trials of the drugs.

To check the standards for Drugs.

To control over the quality of imported Drugs in the country and coordination of the activities of State Drug Control Organizations by providing expert advice with a view to bring about the uniformity in the enforcement of the Drugs and Cosmetics Act.

CDSCO, along with state regulators, is jointly responsible for grant of licenses of certain specialized categories of critical Drugs such as blood and blood products, I. V. Fluids, Vaccine and Sera.

To conduct Audit for the World Health Organization (WHO) along with State Drug Control Organizations & to provide WHO Licence.

CDSCO is constantly working to bring out transparency, accountability and uniformity in its services in order to ensure safety, efficacy and quality of the medical product manufactured, imported and distributed in the country.

Import Registration of drugs and medical devices and provide no objection certificates for export.

Banning of drugs and cosmetics.

NPPA- National Pharmaceutical Pricing Authority

NPPA is an organization of the Government of India which was established, inter alia, to fix/ revise the prices of controlled bulk drugs and formulations and to enforce prices and availability of the medicines in the country, under the Drugs (Prices Control) Order, 1995. The organization is also entrusted with the task of recovering amounts overcharged by manufacturers for the controlled drugs from the consumers. It monitors the prices of decontrolled drugs in order to keep them at reasonable levels. It is mandated to

To implement and enforce the provisions of the Drugs (Prices Control) Order in accordance with the powers delegated to it.

To deal with all legal matters arising out of the decisions of the Authority;

To monitor the availability of drugs, identify shortages, if any, and to take remedial steps;

To collect/ maintain data on production, exports and imports, market share of individual companies, profitability of companies etc, for bulk drugs and formulations;

To undertake and/ or sponsor relevant studies in respect of pricing of drugs/ pharmaceuticals;

To recruit/ appoint the officers and other staff members of the Authority, as per rules and procedures laid down by the Government;

To render advice to the Central Government on changes/ revisions in the drug policy;

To render assistance to the Central Government in the parliamentary matters relating to the drug pricing.

DGFT- Director General of Foreign Trade

Directorate General of Foreign Trade (DGFT), formerly known as the Chief Controller of Imports and Exports (CCI&E), is India’s official administrating body for imports and exports. It is an attached office of the Department of Ministry and Commerce and is headquartered in New Delhi. Its zonal offices are situated at Delhi, Mumbai, Kolkata and Chennai. DGFT is accountable for implementing the Foreign Trade Policy, with the primary objective of promoting the Nation’s exports.

Functions of DGFT

Formulation and Implementation of various trade policies, particularly the Foreign Trade Policy.

Formulation and implementation of promotional schemes.

Conducting research and analysis on policies.

Licensing of imports and exports.

Regulate, restrict or prohibit exports and imports.

Play an advisory role to the Government on Policy measures pertaining to national and international economic scenarios.

Establish and control the standard norms for input and output.

To allocate Import Export Code (IEC) numbers to importers and exporters.

To allocate the Tariff Rate Quota.

Assisting states to develop their infrastructure for exports.

Identifying towns potential for export, and providing them with amenities for growth.

Funding export promotion councils, industry and trade associations, agencies of state governments etc on their various endeavours.

Financial aid for development in marketing and meeting expenses for matters related to trade.

Development of Export Oriented Units, Special Economic Zones, Technology and Bio-Tech parks for the purpose of importing capital goods and services at a discounted rate of customs duty.

FSSAI- Food Safety and Standards Authority of India

Food Safety and Standards Authority of India is a statutory body established under the Ministry of Health & Family Welfare, Government of India. The FSSAI has been established under the Food Safety and Standards Act, 2006, which is a consolidating statute related to food safety and regulation in India.

The present functions of the FSSAI include:

Framing of Regulations to lay down the standards and guidelines of food safety.

Additionally, granting FSSAI food safety license and certification for food businesses.

Moreover, laying down procedures and guidelines for laboratories in food businesses.

To provide suggestions to the government in framing the policies.

Further, to collect data regarding contaminants in food products, identification of emerging risks, and the introduction of a rapid alert system.

Creating an information network across the country about food safety.

Moreover, promote general awareness about food safety and food standards.

The food processing industry is arguably one of the largest industries in India and has a huge potential to contribute to the upliftment of the agricultural economy, creation of large scale manufacturing units and food chain outlets, resulting in the generation of employment and export earnings.