Independent regulatory bodies (IRBs) play a crucial role in overseeing financial sector regulations in India, ensuring fair, transparent, and efficient governance while remaining autonomous from political and private interests.

These regulators, including RBI, SEBI, IRDAI, PFRDA, and IBBI, are subject to parliamentary oversight, judicial review, and performance assessments, but the adoption of Regulatory Impact Assessment (RIA) is essential to enhance the quality of regulations by systematically evaluating their effectiveness and impact.

Independent Regulators: Role And Function

• Definition and Purpose: Independent regulators are specialised institutions established as autonomous agencies, separate from the political framework. They are granted specific powers to oversee and implement policies in various sectors.
• Sectors Governed: These regulatory bodies operate in fields such as utilities (energy, telecommunications, and airports), competition, social sectors (higher education), and financial services (capital markets, insurance, and pensions).
• Primary Functions: Their main objective is to handle complex policy matters, ensure equal access to essential services, and maintain transparency and fairness in regulations.
• Institutional Benefits: The key advantage of these independent regulatory bodies (IRBs) is their ability to insulate market interventions from political and private influences while leveraging specialized expertise in their respective areas.

Financial Sector Regulation

• Governing Bodies: The financial sector is regulated by agencies such as the RBI, SEBI, IRDAI, PFRDA, and IBBI. The Financial Stability and Development Council (FSDC) plays a broader role in maintaining financial stability and fostering inter-agency coordination.
• Variations in Structure: While each independent regulatory body (IRB) differs in terms of design, assigned responsibilities, and autonomy, they all function based on their unique socio-political context.
• Common Features: All IRBs are established by a legal statute, operate with a degree of independence from the government, and are accountable to the legislature. They perform legislative, executive, and quasi-judicial roles and rely on a specialized and technical approach to decision-making.

Regulatory Framework And Functioning

• Use of Regulations: Regulations serve as the primary legal instruments through which IRBs perform their duties and fulfill their objectives.
• Regulatory Quality: The effectiveness of regulations depends on their quality, which is a fundamental responsibility of IRBs, as they derive their authority from statutory provisions.
• Regulatory Autonomy: The ability of IRBs to independently formulate regulations is an essential aspect of their autonomy and operational effectiveness.

Assessment Of Regulatory Bodies

• Self-Regulation: Financial sector regulators are largely responsible for self-evaluation to ensure that regulations are optimal and sufficient.
• Parliamentary Oversight:
  • The Committee on Subordinate Legislation in the Rajya Sabha reviews whether the delegated powers granted under legislative acts have been exercised appropriately and within the limits of delegation.
  • The Standing Committee on Finance examines the effectiveness of IRBs and specific sectors. For instance, in 2024, it reviewed the performance of the insurance sector (66th Report).
• Government Supervision: The concerned department or ministry overseeing the parent statute evaluates IRBs based on overall performance, budget utilization, adherence to parliamentary processes, and administrative aspects. However, these evaluations generally do not assess the quality of regulations.
• Audits by the CAG: The Comptroller and Auditor General (CAG) conducts audits of autonomous institutions, including IRBs. However, its financial and compliance audits do not extend to assessing the quality of regulatory frameworks.
• Judicial Review: Courts review regulations only when they are legally challenged. This review, conducted post-implementation, examines the content, application, and compliance of regulations, ensuring they withstand judicial scrutiny.

Ensuring Regulatory Quality

• Assessment Criteria: The quality of regulations is generally evaluated based on five key parameters: democratic legitimacy, regulator accountability, transparency and accessibility, expertise, and efficiency.
• Preferred Approach: Among these, ensuring an open, fair, and accessible regulatory process is the most practical approach to maintaining quality.
• Regulatory Impact Assessment (RIA): RIA is a widely used method to enhance regulatory quality by evaluating the costs and impacts of regulations on specific business sectors.
• Global Adoption:
  • The World Bank endorsed RIA in 2010 as a tool for public policy analysis.
  • The OECD introduced guidelines for RIA implementation in 2008.
  • By 2016, 32 out of 35 OECD nations had incorporated RIA into their regulatory frameworks.
  • Countries across different income levels are continuously adopting and refining RIA procedures to improve regulatory efficiency.

More On Economic Survey 2024-25

• Editorial Analysis: Prelims-cum-Mains Study Notes, December 2024
• Economic Survey 2024-25: Rural Financial Institutions
• Economic Survey 2024-25: Development Financial Institutions