Who Regulates the Regulators
India built independent regulators for its most important sectors and then left their appointments, budgets and accountability inside the ministries they were meant to check.
An independent regulator whose chairman is appointed by the ministry, whose budget is sanctioned by the ministry, and whose staff are deputed from the ministry is not independent. It is a department with better stationery.
Between the early 1990s and today India built a regulatory state: electricity regulatory commissions at Centre and state, a securities regulator, a telecom regulator, an insurance regulator, a pension regulator, sectoral bodies for petroleum, ports, real estate, food safety and competition. The logic was sound — as the state moved from producing to overseeing, expertise and independence had to be located somewhere other than the ministry that had previously run the industry.
The construction was left unfinished in three places, and the same three recur across almost every regulator.
Four findings anchor this analysis:
- Appointment remains executive. Selection committees vary, but in most cases the effective appointing authority is the Union or state government, often the administrative ministry for the sector. A regulator whose reappointment or post-retirement prospects depend on the entity it regulates faces an obvious structural conflict, whatever the individual's integrity.
- Funding is rarely autonomous. Where a regulator depends on annual budgetary sanction rather than a dedicated fund or levy, its most binding constraint is the goodwill of the department it oversees. Regulators with independent revenue behave differently from those without, and the difference is visible in their willingness to issue adverse orders.
- Capacity is thin and largely borrowed. Many commissions run substantially below sanctioned strength and staff themselves through deputation from government. An officer on deputation returns to the parent cadre; the incentive to write an order the parent department dislikes is correspondingly weak. Sectoral expertise — engineers, economists, actuaries, data scientists — is scarce at regulator pay scales.
- Accountability runs to the executive rather than to the legislature. Regulators typically report through a ministry. Parliamentary committees examine them episodically. There is no routine mechanism by which a regulator must explain its decisions, its pendency and its enforcement record in public on a fixed calendar.
Where this shows up
The pattern is clearest in electricity, which is why it recurs in this Review. State electricity regulatory commissions are statutorily required to determine tariffs. Where tariff orders are delayed, suppressed or issued without the cost basis being followed, the distribution utility accumulates a regulatory asset — a receivable it is permitted to book but not to collect. The Sixteenth Finance Commission's conditions specifically address timely tariff orders and the non-creation of new regulatory assets, which is a tacit acknowledgment that the regulator has not consistently been able to do the job the statute assigns it.
The mechanism is not corruption. It is that a commission whose members are appointed by a state government, funded by it, and staffed from it, is being asked to require that government to raise prices on its own voters. The design places an institution in a position no institution can hold.
The counter-case
There is a real argument on the other side, and it is democratic rather than administrative. Regulators are unelected. Tariffs, spectrum prices and insurance rules have large distributional consequences, and it is not obvious that such decisions should sit wholly beyond the reach of an elected government. Excessive insulation produces its own pathology: a technocratic body accountable to nobody, captured over time by the industry it regulates — which is the standard failure mode of regulators in mature economies.
That objection is correct and it argues for a specific answer rather than against independence. The right settlement is not insulation from politics; it is insulation from the executive combined with accountability to the legislature. Government sets policy through published directions; the regulator applies it through reasoned orders; Parliament or the state assembly examines the record annually in public.
What we would do
- Put appointments through a fixed, published process with a non-executive majority. A selection committee where the administrative ministry does not hold the deciding voice, with candidates and reasons published.
- Bar post-retirement employment in the regulated sector for a defined period. A cooling-off period of two to three years, applied uniformly. This is the single cheapest anti-capture measure available and it is applied inconsistently at present.
- Fund regulators from a dedicated levy, not annual sanction. A small levy on the regulated activity, with the regulator's budget approved by the legislature rather than the ministry. Financial independence is the precondition for every other kind.
- Build permanent technical cadres. Direct recruitment at market-competitive terms for economists, engineers and analysts, with career paths inside the regulator. Deputation should be the exception, not the staffing model.
- Require an annual public accounting. Every regulator should table an annual report covering orders issued and their timeliness, pendency, enforcement actions, and compliance with its own statutory deadlines — examined in a public hearing by the relevant legislative committee.
India built the institutions. It did not finish building the conditions under which they can act. That is the same finding this Review reaches in policing, in the districts and in the courts: the design is sound, the discretion that would make it work was never handed over, and the failure is then described as a failure of the institution rather than of the settlement around it.