Banish Regulation Raj
When he was chief minister of Gujarat, Narendra Modi had a crack team of bureaucrats. Many were more powerful than state cabinet ministers. In a small, relatively developed, homogenous state, this worked. In a large, diverse country with great differences in development indices, it hasn’t. When he first took office as prime minister in May 2014, Modi within days of his inauguration called a meeting of over 70 key senior bureaucrats in Delhi. He gave them a pep talk and said how important their work would be to the new government.
Senior bureaucrats in Delhi are inscrutable. They stood in a line and listened expressionlessly to the prime minister. They needed time to take the measure of the new leader, fresh off the electoral campaign trail. Would he rock their comfortable boat?
Modi turned out to be – as his reputation that preceded him suggested – a hard taskmaster. But to the bureaucracy’s delight, he also turned out to be a little like them: a stickler for rules; a firm believer in processes and paperwork; and, best of all, a strong votary of regulations.
The economic liberalisation of 1991-96 led by former Prime Minister Narasimha Rao and former Finance Minister Dr. Manmohan Singh had been embraced by successive governments, including Atal Bihari Vajpayee’s in 1998-2004 and Manmohan Singh’s in 2004-14. The Licence Raj, the bane of Indian business for decades, was dismantled piece by regressive piece. Modi initially continued these reforms. But after former Congress President Rahul Gandhi’s “suit-boot sarkar” taunt, implying that Modi was a captive of Indian crony capitalists, Modi retreated into the quasi-socialist mode.
The bureaucracy was thrilled. It seized the opportunity. The Licence Raj soon returned with a new pseudonym: the Regulation Raj. Bureaucrats in statutory bodies like the Telecom Regulatory Authority of India (TRAI), Securities and Exchange Board of India (SEBI) and Reserve Bank of India (RBI) were first off the mark. TRAI’s diktats on cable and DTH television channel pricing have now ended up in the Supreme Court. Broadcasters and distributors are livid at TRAI’s frequent attempts to interfere in free pricing which they say will damage the industry.
More toxic are the rules framed by bureaucrats in the Ministry of Corporate Affairs (MCA). Independent directors in companies now have to mandatorily sit for an examination to test their knowledge of corporate law, accountancy and governance. Worse, the MCA has decreed that all directors must mandatorily fill in complex forms with details that bear little relevance to their directorships.
In an article in The Economic Times, Omkar Goswami highlighted the absurdity of the new mandatory requirement: “The paragraph below outlines what this new registration entails. Login. Password. Email ID. DIN. Mobile number. Passport number. PAN. Full name. Gender. Father’s name. Date of birth. Nationality. Current and permanent address. Education, from high school onwards, with the name of institution, specialisation and date of completion. Professional experience from the very first job till date, the period from and up to. Professional expertise. Training programmes attended their duration and at which institution. All directorships, past and present, with name of each company and its 21 digit alphanumeric company identification number (CIN), nature of industry, type of directorship, appointment and cessation date. Whether key managerial positions were held and, if so, in what company and for what period. Whether the person is or was a partner in a limited liability partnership (LLP), what kind of LLP, CIN, what position and from when to when. Plus 17 other questions.”
Other regulators have caught the virus. The RBI’s insistence that the promoter-founders of private sector banks must reduce their shareholding to 15 per cent makes little sense: the lower their stake, the lesser the promoter’s interest in growing the bank. This regulation is predicated on the need to prevent promoters misusing the bank to lend to related enterprises. But that can be achieved by preventive annual forensic audits by the RBI rather than a blanket reduction of promoter shareholding that could diminish rather than boost a bank’s performance. It is a classical case of throwing the baby out with the bathwater.
Industry leaders are not known to speak up fearlessly against the government or its bureaucracy. But murmurs of dissent from the corporate world are growing louder. Rajiv Bajaj, managing director of Bajaj Auto, recently echoed his father Rahul Bajaj, saying that “over-regulation is killing India’s two-wheeler industry.”
Meanwhile, caught in a pincer between the Supreme Court’s order on Adjusted Gross Revenue (AGR) and the Department of Telecom’s insistence that telecom companies pay up, Aditya Birla Group Chairman Kumar Mangalam Birla, part-owner of Vodafone Idea, was forced to issue a public statement that warned how “slobalisation” was replacing globalisation as the new trend of the future.
The Ministry of Electronics and Information Technology (MeitY) has joined the regulatory flurry. It is set to notify new rules that will change the way internet firms are held accountable for the content they host or share. Some of these draft rules have been called arbitrary, financially unviable and a threat to privacy.
But what most typifies a creeping Regulation Raj is the pettiness of certain new regulations. A recent notification has reduced an export subsidy programme called the Merchandise Export from India Scheme (MEIS) from 4 per cent to 2 per cent. This makes the export of Indian-made mobile phones unviable. Chinese phones sell at a 20 per cent discount to Indian phones in global markets. The 4 per cent subsidy helped Indian phone makers compete with lower labour costs. Cutting the subsidy to 2 per cent could spell the end of their role in the Make in India initiative that phone manufacturers had embraced with an eye on exports.
The director of Lava Mobile, Hari Om Rai, lamented: “We have stopped taking fresh export orders as we cannot sell them at a huge loss after the reduction in the MEIS. Even at 4 per cent, the disability in cost was not completely neutralised but we were still exporting. But this government move will severely impact exports.”
Regulations are necessary to ensure a level playing field across sectors and monitor fair business practice. But over-regulation is counter-productive. It damages the very industries regulators are mandated to protect, nurture and grow with commonsensical – not arbitrary – rules.
