Economy: Regulatory Auhorities: Watchdogs in Chains

Thanks to an uncertain Government and a spate of legal wrangles, India's regulatory system has generated more heat than action.

Unless you have spent some time with obscure business news of late, you may not have realised that India's regulatory system (which is supposed to make services like telecom, power and insurance efficient and customer-friendly) has gone through an eventful fortnight.

CERC (POWER)
CHARTER No roadmap given by the government. Its two main functions -- pricing of electricity and determination of transmission tariff -- were officially transferred to CERC only in May 1999. CERC had to prepare a discussion paper on bulk electricity prices and formulate the code for transmission.	ACHIEVEMENTS In September this year, it gave the first proof of its work: a consulation paper on power tariffs. In November it issued guidelines for transmission. If that seems too little, remember that CERC has had to change three offices in 14 months and its recruitment rules are yet to be cleared.

On November 1, the Supreme Court dismissed the Telecom Regulatory Authority of India's (TRAI) petition to lift a Delhi High Court stay on the implementation of the calling party pay (CPP) system. For mobile users this means a further wait for free incoming calls. It also puts on hold the proposed reduction in monthly rentals (from Rs 600 to Rs 475 a month for metro users) and cut in charges (from Rs 6 to Rs 4 a minute at peak time) on calls made from cellular phones. But more than anything else, the court's order diluted the already defiled status of the regulatory authority. Rues Justice S.S. Sodhi, chairman, TRAI: "This is a defining moment for TRAI. The Government should decide if we have to have a meaningful role. If not, it might consider winding up the TRAI."

Sodhi's explicably sombre mood was in contrast to a beaming S.L. Rao, chairman, Central Electricity Regulatory Commission (CERC), who released what is called the Electricity Grid Code on November 1. Once implemented, this code should bring order into India's chaotic and insufficient power transmission network. A day later, CERC became the only regulatory authority in the world to sign an information exchange agreement with its US counterpart Federal Energy Regulatory Commission (FERC). Preceding all this, of course, was the introduction of the Insurance Regulatory Authority and Development (IRDA) Bill in the Lok Sabha on October 27.

TRAI (TELECOM)
CHARTER TRAI was expected to make telecom services affordable and efficient. This was to be done by restructuring prices of services, recommending introduction of new services, monitoring licensing agreements and resolving disputes between telecom companies.	ACHIEVEMENTS Much time spent fighting legal battles to protect its autonomy. Its first price revision of STD/ISD calls in March this year was diluted before implementation. The tariff order on mobile services is stayed by the courts. Recommendations have been challenged and mediations ignored.

What do these random developments signify for the evolution of a sound regulatory environment in India? Nothing very optimistic, if the systematic muzzling of the TRAI is any indication. The TRAI Act of 1997 provides four major powers to the regulatory body: recommend the need and timing for a new telecom service; settle disputes between service providers; fix tariff; and advise government on issues of telecom development. On all the four counts, the TRAI progress report has been patchy, for little fault of its own.

The first role was brought to a naught by MTNL's 1998 decision to enter cellular services without a recommendation from the TRAI. As the situation stands today, TRAI can recommend the entry of a new service provider before or after the service provider has started its services. Obviously, any recommendation on a service already in operation will have little relevance. TRAI's powers for dispute settlement were diluted following a high court ruling stating that the body has no jurisdiction over disputes between licencee (service provider) and licensor (government) and should only restrict itself to disputes among service providers. But TRAI's point is that since all service providers are licencees, it is impossible to settle disputes between them without referring to the licensor.

Finally, the standoff over the CPP has eroded TRAI's tariff-setting powers as well. Complains Sodhi: "The irony is that while the Government talks of strengthening the TRAI, a concerted attack is launched on us by MTNL and dot -- both owned by the state."

IRDA (INSURANCE)
CHARTER In existence since 1996, it could have revised prices of different insurance services and products, recommended the need and timing of introducing new products and services, spelt out ground rules for new entrants in insurance besides protecting the interests of policy-holders.	ACHIEVEMENTS Since IRDA is yet to be made statutory, it is difficult to evaluate its performance. In its capacity as the tariff advisory board it revised premia onvehicle insurance last year. Has helped draft insurance bill and is ready with some regulations.

CERC hasn't had such teething problems. It hopefully never will. After all, unlike dot in the telecom sector, the power sector is not dominated by a single public sector monolith that would challenge CERC powers. But CERC will still face problems in carrying out its prime charter of promoting competition. The biggest anti-competition force in the power sector is the virtual monopoly of the public sector over transmission and distribution. Even in generation, the private sector's share remains minuscule. Moreover, the state and Central governments strictly control the sale and purchase of electricity. The only tool available with the CERC to promote competition is its control over generation and transmission tariff. Even these powers were officially transferred to the commission only on May 15 this year, nine months after its formation.

So far, CERC has prepared two reports: a consultation paper on wholesale electricity tariffs (rates to be charged by generating companies from bulk buyers such as SEBs) and a code for power transmission. Even to achieve this much CERC has withstood practical problems. The commission has the financial power of a Union ministry, but it can't issue cheques. The Department of Personnel has not cleared the CERC's recruitment rules for more than a year. Complains Rao: "The controls bothering us are not from ministers or secretaries, but from low-level bureaucracy. That's worse."

Like the TRAI, IRDA will be confronted with huge public sector monopolies like LIC and GIC, who -- like dot -- could resent any regulatory move that threatens their business. But unlike the other two regulatory bodies, IRDA has the power to issue licences.

Nonetheless, to allow regulators to deliver what they are expected to, it's important to pick up a few lessons learnt from the experience so far. The final answer to much of the current problems is of course the privatisation of big PSUs in all infrastructure sectors. Says B. Bhattacharya, professor, Institute of Economic Growth: "These PSUs view regulators as a threat to their monopoly and resist every move to promote competition." But till privatisation happens, experts suggest some interim steps.

The most immediate one is the amendment of the TRAI Act to clarify the scope of its powers. That will reduce the need for frequent intervention by courts and set a precedent for other regulators to exercise their powers. There has to be a greater understanding of regulators' functioning among the government and judiciary. In the US, courts rarely admit appeals against regulators' decisions. And when they do, they usually send the decision back to the regulator for review instead of staying it or overturning it.

For consumers a strong regulator is the best bet. The CPP system, for instance, is a one-shot measure to expand the user base of cellular phones. Presently, about 50 per cent of the subscribers of mobile phones use their handsets as pagers -- to identify the caller. There's no directory for cellphone numbers and subscribers don't want to disclose their numbers for fear that they'll have to pay for unwanted incoming calls. All this will change if mobile users don't have to pay for incoming calls. The consumers -- and the economy -- will reap many more benefits if the regulators are allowed to do what they are meant to do.

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