Note on the session Rethinking Regulators: Strategic Asset for Business Growth

INTRODUCTION

Experts from the government, from the regulators and from the academia including those from the OP Jindal University held a deep dive session on “Rethinking Regulators: Strategic Asset for Business Growth” on 12 June, 2025. 

At the intense session, experts discussed how some of the regulators have made the welcome transition from just checking boxes to enforce compliance by individual entities to principle-based regulations. This has allowed the regulators to develop pricing decisions that suit the industry and serve the customers. This has helped them move away from being held hostage to managing the capital investment made by the business as the basis of pricing of services that helps the sector grow and keep costs low for the customers. 

The context is clear. The world has moved from being governed solely by elected politicians to being governed by specialized technical experts (regulators) because modern challenges are too complex for traditional political structures to handle alone.

What are the challenges?

As one of the speakers put it succinctly when there is a natural monopoly there is always this risk of dominance and its misuse. So, the government has to have a regulator for those sectors.”

On the same theme, another expert pointed out that to make the transition to the principle-based regulation it is important to make a judgement call about the quality of regulators. “This has not always proved to be a very effective example in India's case”, was the opinion in this context. 

Only if these conditions are met can the regulators be regarded as “strategic assets”. The reverse question is if they are not strategic assets, then do they become liabilities? It was also debated that globally there is a tendency to shift away from regulators. “There's no denying this and one of the most approximate and acceptable reasons for that is the cost of funding regulators”. 

These raise the issue of funding for the regulator and questions on whether the consumers get to know how much of the charges she pays as well as the means to finance the regulators. 

In this context the announcement made in Union Budget FY2026 for a relook at the regulators presumably means moving towards a light touch approach. But then “what exactly is a light touch approach or the feather touch approach and how those should be balanced, will be some very interesting issues to develop”. 

For instance, some regulators are examining the nature of investments made by business in the states to figure out if the money is going into the extraction of minerals or whether they are going for the development of infrastructure. It is difficult to judge whether such analysis would be classified as a light touch regulation or an invasive one. But when the regulator sets charges those have to be reasonable which means a fair number of details from the sector operators have to be extracted to arrive at a fair decision. 

The closed-door session was attended by over 50 guests and a most distinguished panel of experts.  The session also discussed the aim of CRG, as enunciated by Dr. C Raj Kumar Founding Vice Chancellor of the Jindal Global University to build an annual report focused on assessing—rather than criticizing—regulatory bodies. The goal, assembled scholars acknowledged was to build a deep understanding of regulation that also becomes useful for policymakers, business leaders, and the public.

Some of the specific themes discussed were with respect to Insurance Regulatory and Development Authority of India and Airports Economic Regulatory Authority, among others.

Expanding the market: From forcing every company to follow the same rigid rules ("one-size-fits-all"), regulators are moving to principle-based regulation. This focuses on the outcome rather than just "ticking boxes." Through the means of Regulatory Impact Assessment (RIA), the regulator could now assess the cost to businesses before passing any new rule. Simply put if the benefit doesn't outweigh the cost, the rule isn't made. 

Also, IRDAI has moved insurance products and sales from a "city-centric" model to a "village-first" approach through state-level strategy where underwriters partners with state governments. This ensures that money from insurance is invested back into local projects like roads and mining, helping the state grow. They are training local "village entrepreneurs” and using post offices to sell insurance.

Regulating a monopoly: 

Airport, airlines, passengers and cargo are the four stakeholders in Airport infrastructure sector. Earlier the state-owned Airport Authority of India (AAI) used to play the dual role of airport operator and regulator. Thus, it was both fixing aeronautical charges for airports as well as monitoring performance standards of airports. “So, there was a mismatch between the charges levied and the quality of service which was being made available by airport. This was one of the reasons for bringing private sector to improve efficiency and promote competition.

The perceived benefits are in terms of savings in government expenditure that can instead be spent on other priority sectors while private companies handled airport costs. Modernization ensured by Regulators make it essential for airport management companies secure financial leeway to upgrade facilities and facilitate growth in terms of business expansion, offer a modernized public infrastructure and expand the industry. 

For instance, the Delhi Airport in 2006, when it got privatized, had capacity to handle just 12 million passengers/annum and today it has expanded to 100 million passenger/annum.

In this context the regulator has to ensure that though an airport is a natural monopoly, passengers and airlines are not charged unfairly. It can be concluded that having a regulator has been beneficial for the industry because it has attracted Investment, encouraged Private Competition and acted as a Strategic Asset.

Quality Of Regulations: 

Ensuring the quality of regulations is a very subjective idea. To assess that it might even be necessary to bring in another regulator to examine the regulations.

This means there is a delicate balance between regulations and regulators in a modern economy. This should cut against an overriding tendency to create regulators without matching laws. It creates a risky environment as a regulator without a clear law could end up making rules that exceed their mandate.

This has happened globally too. While the WTO struggles as a global regulator as the respective legal environment is not clear, whereas the Free Trade Agreements (FTAs) often have no central regulator but succeed. Parties to the Agreement follow a set of agreed-upon rules based on trust and mutual benefit. Business happens "seamlessly" because everyone respects the rules, not because a "policeman" is watching.

Are Regulators “Strategic Assets”

Regulators operate as strategic assets (tools that add value) provided they add value. However, if a regulator doesn't provide clear value, it effectively becomes a liability. Globally, people are moving away from heavy regulation because it is expensive and difficult to fund. There is an identity crisis of Regulators. It is important to remember that they are not industry associations or lobbies, but are government agencies.

Some smaller states like the Philippines have specific laws because of which there is no need for a regulator. If you want to change a rule, you go straight to Parliament. In these cases, the law is the final word, leaving no room for a separate regulatory body to interpret things.

Q&A

1. How to ensure costs do not multiply for the citizens using a service. The answer is that this is a delicate balancing act designed to protect three main groups while keeping the industry financially healthy. Business for instance, should recover investments and earn reasonable return (currently targeted at roughly 15%) but also provide costs low enough to keep using the facility or buy the services.

2. What is the Future for Regulators when you see that the world order is kind of bickering and is almost falling into smaller compartments? It can be related to why era of massive, global trade agreements (like WTO) is ending and what is replacing them. WTO was built on the assumption that trade should be a neutral engine for growth and poverty reduction, originally assuming countries would follow single set of global rules because everyone benefited economically. However, major powers now use trade as a tool to project political and economic power (geo-economics). Powerful nations now prefer to set their own standards.

Since global agreements are failing, trade rules are moving to smaller, more manageable groups, the EU, for example. It focuses on keeping its internal trade moving smoothly because it has a massive "vested interest" in its own neighborhood. 

3. While regulators often control pricing, they frequently overlook customer redress. The answer is related to the following steps taken by regulators for customer redressal:

Dedicated Support: A specific call center, web portal, and set of regulations are devoted entirely to policyholder grievances.

Transparency: the regulator must publish data regularly in its annual reports regarding number of complaints, resolution rates, and companies with the most issues.

Legal Authority: Under Insurance Act, regulator has power to intervene if justice is not being served.

Board Oversight: Reviewing customer complaints is mandatory agenda item at board meetings.

Conflict Resolution which means Simplified Communication: Using media campaigns to explain policy terms and conditions in "plain English".

4. Whether independent regulation can survive when line between big business and government disappears. What was once a theoretical "conflict of interest" has become a reality in many countries. The core change in 1991 was moving from govt-controlled regulation to independent regulation. 3 major flaws were identified in current setup:

Regulatory Overlap and Vacuums: There are now roughly 30 different regulators for economic activities. This creates two problems: Overlap due to Multiple agencies and Vacuum where agencies claim it wasn't their responsibility.

Lack of Coordination: While regulators must be experts, there is no effective mechanism to make them work together. The FSDC (Financial Stability and Development Council) is meant to do this but is currently failing to bridge gaps between 30 different bodies.

Accountability Gaps: Regulators are financially independent, which is good for autonomy but bad for oversight.

The Theory: Their reports are "tabled" in Parliament for review.

The Reality: In 40 years, there has been almost no actual discussion or debate in Parliament regarding these reports. They are filed away without scrutiny.

A persistent issue was acknowledged: Crony Capitalism. When big businesses are "over-friendly" with the government, it becomes difficult for regulators to remain truly independent. There is often confusion over who should speak or act-government or regulator.

5. What are the main Regulatory challenges in India? The main challenges can be attributed to:

Regulatory Confusion & Policy Inconsistency

Contradictory Signals: Using the banking and insurance sector as an example, different government bodies often issue conflicting circulars 

Legal "Escape Clauses": Many laws governing PSUs have built-in loopholes that allow them to bypass certain regulations, such as requirement for independent directors.

Shift Focus to "Sub-national" Level: It is suggested that instead of only looking at global or national standards, we should look at state and city-level regulation.

Funding and Independence: Self-Funding: This would make the regulator more independent.

The Licensing Debate: There is a question of whether the Regulator should also be the one to issue licenses. In some sectors (like Finance), the regulator handles licensing. In others (like Telecom), government keeps the licensing power, and regulator only monitors behavior.

There was a concern about whether one appellate body can handle multiple regulators. It was argued that it is well within the capacity of an appellate body to manage various regulatory concerns, provided it is structured correctly.

6. Role of SROs (Self-Regulatory Organization) in Regulations. The core argument is that while SROs are meant to manage industries, they often lead to "regulatory capture," where a few powerful players (incumbents) lock others out. SROs are often formed by the biggest companies in a sector. These "incumbents" can use the SRO to set rules that prevent new, smaller competitors from entering the market. Regulations should primarily serve the public interest, not the ease of doing business. 

7. How India manages complexities of multiple regulators, specifically addressing "overlap" of jurisdictions and whether regulators favour government-owned entities (PSUs). To this question, it was mentioned that as economy grows, businesses are increasingly finding themselves governed by multiple agencies simultaneously. This leads to:

Regulatory Arbitrage: Businesses "shopping" for the most favorable regulator to avoid stricter rules elsewhere.

Turf Wars: Conflicts over which agency has the final authority on a specific issue.

Inefficiency: The lack of a formalized mechanism to consult during the drafting of regulations leads to avoidable friction later.

Addressing the "Pro-Government" Bias:

In response to concerns about favoritism toward PSUs, it was argued that:

Regulation is Agnostic: In sectors like Insurance, rules are applied uniformly to both public and private players.

Enforcement Actions: The Competition Commission of India (CCI) has a track record of penalizing government bodies and PSUs for violations, asserting that they are not exempt from the law.

Box:

1. Having more regulators doesn't make a country more successful.

The Proof: South Korea has very few regulators but is great for business; China has many, but it hasn't solved all their issues.

The Risk: Too many regulators often lead to "turf wars" where they care more about their own power than the public good

2. Instead of having many small, specialized agencies, governments are moving towards centralization.

Example: EU now manages major digital laws directly through its main commission rather than creating new agencies. This makes rules more consistent and powerful.

3. There is huge difference between helping competition & helping specific companies:

Pro-Market: Like a fair referee. They make sure everyone follows the same rules so the best company wins.

Pro-Business: Like a biased coach. The government picks a "winner" (a National Champion) and helps them succeed directly, often ignoring the rules.

4. Regulators used to be the "middlemen" between government and business.

The Change: Governments now act like businesses, and big businesses act like political powers.

The Result: If the government and a giant business are working as partners, they don't want a "referee" (regulator) getting in the way.

Our special thanks to: