CUTS PROJECT “ADOPTION OF REGULATORY IMPACT ASSESSMENT (RIA) FRAMEWORK FOR INDIA” LAUNCH MEETING

INTRODUCTION Consumer Unity & Trust Society (CUTS) is implementing a project entitled ‘Facilitating the adoption of regulatory impact assessment (RIA) framework in India’ with support from The British High Commission, New Delhi. The project will run in two cycles of around one year each, and each cycle will be followed by advocacy and capacity building exercises for the central government and regulatory agencies. Amongst other things, a RIA toolkit will be developed to guide undertaking of RIA in India and similar developing economies. In this context, the Launch meeting was organised with the objective of involving stakeholders, subject experts, policymakers, media, etc. During the meeting, project details were shared with the aim to solicit specific inputs from stakeholders. INAUGURAL SESSION Pronab Sen, Chairman, National Statistical Commission, mentioned that hitherto the policy making process has been linear in nature and there has been no single policy that has looked into their indirect impacts. He further mentioned that the objectives and impacts of any policy must be thoroughly analysed before the same is sent to cabinet for approval. However, it is pity that there is a lack of technical and intellectual capacity to make such analysis / assessment. In India, technical experts come into picture only after the policy is formulated. He, therefore, highlighted the importance of laying down costs and benefits of the policies upfront and building technical expertise and capacity within the government. He mentioned that the CUTS research project is a step in right direction and it is for the first time that RIA process will be launched in India. Dr Sen was speaking at the Launch Meeting of a two-year project entitled “Facilitating the adoption of regulatory impact assessment (RIA) framework in India “ covering the financial sector in India (banking and insurance sectors)”, with support from the British High Commission, New Delhi under its Prosperity Fund programme. The project will run in two cycles of around one year each, and each cycle will be followed by advocacy and capacity building exercises for the central government agencies. Amongst other things, a RIA toolkit will be developed to guide undertaking of RIA in India and similar developing economies. Arun Maira, Former Member, Planning Commission, speaking on the occasion stressed on the need of steering the economic sectors (as opposed to controlling). This requires involvement of multiple institutions, and thus lateral coordination and communication with actors in the system. Regulatory impact assessment ensures this and also guarantees checks and balances in the system. He referred to the PMO directive to relevant ministries to reduce the regulations, and highlighted that this is the right time to undertake RIA. He highlighted the important partnership with CUTS on the Working Group on Business Regulatory Framework, which produced a report focussed on the overall framework of doing business in India and one key recommendation that emerged from the report, was the need to adopt RIA and he was happy that CUTS has taken the lead to take forward the recommendations.

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“A key culprit identified, behind this regulatory maze, is the fault in legislation and regulation making process, and absence of periodic review of legislations and regulations in India, a practice often exercised in UK and other OECD countries. The law makers do not attempt to ascertain the impact of legislations on different stakeholders and laws are made on the basis of what the lawmakers think the solution is, which is often not correct. This quite often results in unintended consequences on the market, market players, as well as the consumers”, said, Udai Mehta, Director, CUTS International Aurodeep Nandi, Senior Economist, British High Commission, mentioned, “that in India the challenge one faces is that adoption of regulations is very popular and one remains a control freak. He stressed that regulations are important but one needs to ensure a balance between light regulation and heavy regulation, so as to ensure that we avoid increasing the costs on producers and consumers. Nandi, referred to the practice in UK, so as to reduce the number of new regulations for businesses, the government operates a ‘one-in, two-out’ rule. This helps prevent government policymakers from creating new regulations that increase costs for business and voluntary organisations. He emphasised that the need to adopt RIA was long overdue in India and it is the need of the hour, as the tool would help policymakers undertake cost/benefit analysis before introduction of new legislations. Nandi also referred to the long term partnership with CUTS spanning across issues pertaining to competition, public procurement, corruption and that the relationship has been extremely fruitful. This meeting attracted the participation of nearly 40 – 50 delegates - representatives of civil society organisations, government, regulatory experts and scholars and others discussed possible methods and approaches which could be used to assess costs and benefits of regulatory reforms. Session I: Need and Importance of Regulatory Impact Assessment for India The session started with a presentation from Muzzamil Patel (Senior Director, Deloitte) on ‘Regulatory Impact Assessment in Indian Financial Sector’. He highlighted various problems in the Indian financial sector such as need to deepen corporate bond market, enhancing consumer protection, achieving greater financial inclusion, etc. The regulations in financial sector have unintended consequences, often over-regulate, and at times result in thwarting their own objectives. He mentioned that the regulations must be clear about their objectives and stakeholders must be involved in development of legislations. An ex-ante impact assessment taking into account stakeholder concerns fosters clarity in regulatory objectives. Patel highlighted the need to build capacity and provide training to policy makers and regulators to adopt and inculcate the practice of impact assessment in the regulatory and policy making bodies. This was followed by a presentation by Deboshree Banerji (Research Assistant, CUTS) on the overview of the project. She laid down the contours of CUTS project, being undertaken in the banking and insurance sector for a period of two years. The impact assessment is proposed to be undertaken on the primary laws. It was highlighted that capacity building and training of central government agencies and regulators is inherent part of the project and thus the project is expected to add value to the available body of knowledge. Dr. Pronab Sen chairing the session mentioned that financial sector regulation and policy making must take into account concerns of all the stakeholders and voices of unheard and 2|Page

unaware must not be ignored. RIA has the potential to do this, and thus it is an important tool in policy making and review. This was followed by a discussion on the proposed project outline. Prof. T.T. Rammohan (Professor, IIM-Ahmedabad) enquired about the logic of selecting primary legislations for undertaking RIA as most problems in the financial sector are related to the secondary legislations or the regulations that are made by the regulators as such directives impact the stakeholders the most. Prithvi Haldea (Chairman and Managing Director, PRIME Database) voiced similar concerns. Another query that was raised by Somasekhar Sundaresan (Partner, JSA) was on the selection of banking and insurance laws and not taking in account the other sectors such as securities and capital markets. The project team mentioned that the project has certain capacity, financial and time constraints within which it needs to be implemented. It was further highlighted that the regulators derive their powers from the primary legislations and if these are not well crafted, the regulators will not be able to design correct regulations. The primary legislations will have to mandate regulators to undertake RIA of their regulations, without which RIA in secondary legislations might not become reality. Moreover, it was observed that while the secondary legislations or regulations have started adopting greater transparency practices, such as putting draft regulations in public domain, such is not the case with primary legislations. Consequently, there was a greater need to fix the primary legislations/guidelines making and review process in India. Session II: Panel Discussion on “Regulatory Impact Assessment for India: Need or Better Regulation” After the presentations that gave a fair idea as to the nature of RIA, its requirements and a basic insight into the project, the roundtable was set to motion. The round table speakers comprised of dignitaries and experts of financial sector.1 The session was spear-headed by Mythili Bhusnurmath (Consulting Editor, The Economic Times). The Chair requested each participants to speak for 3 minutes and forward their opinion and ideas on the project and conducting Regulatory Impact Assessment (RIA) of the Financial Sector. The inferences from the roundtable can be grouped into the following points. 1. Concern over Political Aspect and due consideration be given to previous works of government TCA Srinivasa Raghavan (Consulting Editor, Business Standard), initiated the round table by stating that the choice of parameters in the present project must not neglect the political consent with respect to any law or policy. He suggested that while the present project will have its own merits and challenges, it stands imperative that due regard must be given to the historical and political background of the developments that led to the present form of the financial sector. He emphasised that due regard must be paid to the past reports on financial sector such as Financial Sector Legislative Reforms Committee (FSLRC) and Committee on Financial Sector Assessment (CFSA). These would provide a background to the present 1

For the exhaustive list of speakers at the roundtable refer annexure.

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project which in turn would save time to assess the problematic that fester the sector. He also pointed out that due consideration must also be made to the political environment that affects the adoption of any methodology that substantially affects the legislative process. Jessica Seddon (Founder-Director, Okapi Research) too concurred with TCA Srinivasa Raghavan’s rationale of incorporating political will into the project and asserted that the team must look where RIA fits into the political will of the country. Somasekhar Sundaresan too agreed and stated that the present project must build on the task undertaken by the FSLRC and CFSA. T. T. Ram Mohan also pointed out that apart from the two Reports, the FSA Report on the Failure of Bank of Scotland must also be referred to. 2. Increase the ambit of legislations Prithvi Haldea pointed out that the scope of the project must also incorporate the secondary laws thereby increasing the regulatory band width of the project. Citing example of mutual funds he pointed out that the problems affecting the sector emanates from the secondary laws. He opined that while perusing the legislations one needs to re-visit the framing and the parameters of the regulations and also the process adopted by the committees within regulators to get a holistic picture of the legislations. Concurring to this Jessica Seddon pointed that the nature of the project is such that additionally it must also check and deduce the incoherence of legislations within the sector. She opined that greater coherence and integration can be achieved through cross disciplinary approach. She further stated that the team must also undertake cross-cutting analysis of the legislations. The ambit of legislations must be defined by highlighting problems that can be done through case studies. She appealed that the project must be connected to the ground realities. T. T. Ram Mohan stated in this context that failure of governance can be avoided; provided that micro-level governance is looked at, which can be done by spreading the gamut of legislations to incorporate secondary legislations also. Aarti Krishnan (Head, Research Bureau, Business Line) also asserted the secondary impacts of insurance sector regulation and the spill over effects that product regulation has on the intermediation side. She also highlighted the special treatment given to LIC by way of sovereign guarantee Arun Maira here asserted that the process of making regulations must also be emphasised. 3. Clarity in Project Objective Somasekhar Sundaresan flagged the need of lucidly chalking the objective of the project, create ambit and perimeters defining the limits of the project and allowing the observations made and inferences drawn in the process of culmination of project within such perimeters. Citing the example of FSLRC, he pointed out that the present project must have a clear objective; it must build on the past work and must strive to fulfil the scope of the objective itself. He pointed out that lot of regulation making is intuitive and not empirical in nature; therefore, studying these with clarity is important. To this, T. T. Ram Mohan also agreed and stated that the clarity in objective is a sine qua non for the said project. Mythili Bhusnurmath interjected here and emphasised, that, the object of the project must try to explain how the initiative made by CUTS is different from FSLRC. 4. Data procurement 4|Page

Jessica Seddon pointed out that the basic challenge that the team might face is in terms of getting data and also in conducting a cost benefit analysis especially since there are hardly any institutes that conduct cost benefit analysis in India. To this, Somasekhar Sundaresan added that lack of availability of data has a knee-jerk reaction over the policy makers. Hence, it is need of the hour to reform the regulatory framework and focus on capacity building. Prithvi Haldea also pointed out that data procurement is a tough task even through Government channels, especially since there are no means to verify the data and the authenticity of the data is of prime significance. Charan Singh (Professor, IIM-Bangalore) reckoned the need and importance of transparent and easy accessibility to data. Aarti Krishnan here emphasised on the paucity of data available. 5. Consultation with stakeholders TCA Srinivasa Raghavan raised the concern of stakeholder consultation. He opined that to get accurate results while conducting RIA, the team needs to get response of the market players. For this purpose, it is imperative that the stakeholders in groups such as representative bodies are consulted. 6. Public consultation and transparency Prithvi Haldea raised concern that despite the fact, that, comments are often invited by the regulators before formation of legislations. Rarely the boards of the respective regulators revert back to the public as to why a certain comment is not incorporated or what was the rationale of incorporating a particular comment but not assimilating another into the legislations. Another issue flagged by him was the usage of multiple ids that are employed by a group of individuals for the purposes of giving comments; this in turn adversely affects the decision-making process. Atindra Sen (Advisor – Corporate Affairs, Shapoorji Pallonji Group) mentioned in this regard that only a particular set of stakeholders, such as the Indian Banks Association are consulted, and not the consumers. Jessica Seddon cited an example of Health Effect Institute of United States where estimate impact assessment is made on a regular basis this enables transparency in the system. 7. Better hypothesis and appropriate sector Atindra Sen (Advisor – Corporate Affairs, Shapoorji Pallonji Group) opined that appropriate sector have been chosen for undertaking the project since there is mis-selling and biasness prevalent in the banking and insurance sector and that the consumers are not considered for the purposes of these two sectors therefore an attempt must be made to rebalance the sector capturing the interests of the consumer in the functioning of the sectors. Therefore, he appealed that while conducting RIA the team must keep in mind the issues related to the consumers. Both Atindra Sen and Somasekhar Sundaresan cited the example of regulation of Collective Investment Scheme (CIS), and debated whether schemes of Mahindra Holidays and by Bajaj Scooters in past, could be termed as CIS. Arun Maira (Former Member, Planning Commission) too emphasised that the project needs to be lucid about the objective and therefore provide a better hypothesis. Conclusion 5|Page

The roundtable culminated with observations made by Pradeep S. Mehta (Secretary General, CUTS) who stated that there has been a paradigm shift in the work undertaken by CUTS. He said that the parameters defining consumers have increased to incorporate those sections that do not have access to the services. The lack of access deprives them to come within the scope of the term, therefore, as a consumer forum it is important that due consideration is paid to creating new consumers also. Hence CUTS has undertaken various path breaking projects that not just protects but also creates new empowered consumers. Regarding the project, he stated that the idea of RIA was conceived while working on business regulatory environment and that anything that applied to manufacturing sector equally applies on the service sector. He also pointed out that there exists a tendency to amend rather than create a new law, but sometimes tweaking in itself is not sufficient. Citing the example of the Monopolistic and Restrictive Trade Practices Act, 1969 (MRTP Act), clarified that the Act was infested with shortcomings and was not in a position to cope with the challenges of the present times. Therefore, it stood imperative that the whole Act be scrapped off to give way to more progressive legislation – Competition Act, 2002.

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Annexure List of Participants S. No. 1. 2. 3. 4.

Name of Attendees Aarati Krishnan Arun Maira Arunabh Choudhary Atindra Sen

5.

Aurodeep Nandi

6. 7. 8. 9. 10. 11.

Charan Singh Jessica Seddon Muzammil Patel Mythili Bhusnurmath Pradeep S. Mehta Prithvi Haldea

12.

Pronab Sen

13. 14. 15.

Somasekhar Sundaresan T. T. Ram Mohan TCA Srinivasa Raghavan

Designation Head, Research Bureau, Business Line Former Member, Planning Commission Advocate, Juris Corp Advisor – Corporate Affairs, Shapoorji Pallonji Group Senior Economic Adviser, British High Commission Professor, IIM-B Founder-Director, Okapi Research Senior Director, Deloitte Consulting Editor, The Economic Times Secretary General, CUTS Chairman and Managing Director, PRIME Database Chairman, National Statistical Commission Partner, JSA Professor, IIM-Ahmedabad Consulting Editor, Business Standard

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