Recently, we reported on how the Indian Railways is commencing construction on a railway line in Karnataka despite the fact that the Ministry of Environment declined environmental clearance for the project that would cut through the Western Ghats. Clearly, the Ministry of Railways appears confident that a companion ministry can be taken for granted, or that pressure could be brought on the Ministry of Environment to force it to give the necessary clearance.
Why is this going on? The central problem - one that is well known - is that there is an inherent conflict of interest when the government is both the 'development or project implementation agency' and the 'regulatory authority' in the same sphere. This is too much concentration of power and can never work; this is precisely why in nearly all democracies autonomous regulators (created by law) are given the power to issue or revoke licenses, clearances, set standards and enforce governance guidelines. Independent regulators have a better chance than conflicted government Ministries of creating a level field for all players, and are thus less subject to 'policy capture' by vested interests.
• Railways violating conservation law
• Radio: untying the knots
• Community radio gets its day 
Another regulatory wrinkle was observed in the case of radio licenses for non-profits. The government opened up broadcasting for community radio last week, and the Ministry of Broadcasting will soon offer these licenses as its policy. I.e., the ministry currently retains the regulatory role for itself, and does not enable a third party - say, TRAI - to license broadcasters. And because it's merely the policy of the ministry, and not law that permits these license, others in the Cabinet are able to safely oppose it. Until the Cabinet's decision of last week, the Ministry of Communications - whose current head Dayanidhi Maran has ties to commercial broadcasting companies - had been opposing the opening up of the radio sector to non-profits. This conflict of interest reportedly played itself out while a designated Group of Ministers deliberated on the policy, until finally the Agriculture Minister Sharad Pawar weighed in.
Conflicts of interest also exist in a number of other spheres where public sector enterprises compete with private companies. As the nation gradually liberalises various sectors - mining, banking, insurance, education, transportation, etc. - we witness repeatedly that the regulatory space is skewed to ensure the health of some players to the detriment of other players. Sometimes the skew favours particular private players over other private players, and at other times it advantages government-run entities over private operators. Route determination for private airlines, and no-objection certificates from government-run schools for private schools, RBI-controlled permissions for new bank branches of private banks, are all examples of government intervention where, whatever the justification, there is evident conflict of interest between the government as regulator, and government-run organisations being among the regulated entities.
It is not that independent regulation in unheard of in Indian governance. On the contrary, India is already seeing an increasing number of scenarios where professionalised, statute-enabled, independent regulators are showing that they have the will to deliver.
The opening up of the telecom space to private participation was accompanied by the institution of TRAI. Despite problems and challenges, some of which remain unsettled, it can be said today that the telecom regulator is seized of its role in letting both commercial telecom enterprises and public-sector telecom giants grow and evolve to meet consumer demand, while still keeping the playing field level, and being a watchdog. Another public authority who has brought in some degree of stability and governance to the economic sphere is SEBI, the capital markets regulator. There is still much to be done here, but at least the Ministry of Finance is not playing watchdog, opening up its decisions to vested interests everywhere.
The examples that are working well, and the others that plainly speak of misgovernance, are both instructive; the road forward clearly lies in separating the regulatory role from the government, and vesting this instead with independent bodies created by Parliament, that are free of government control. Currently, what passes for regulation in many spheres is a constantly tweaked and revised mish-mash of policies and notifications, each well short of the force of law, but nonetheless backed by the might of the state.
This must change. For environmental regulation, the country needs an apex environmental protection authority, created by Parliament, whose mandate it would be to protect the environment against abuse by everyone - ministry-controlled PSUs as well as private industries with undue influence. For this, a new enabling legislation that reconstitutes the entire environmental clearance process is necessary.
Likewise, broadcast regulation must be the domain of a statutory authority, not the government, so that access by commercial firms, government-run bodies, public sector firms, non-profit organisations, and educational institutions (government-run or otherwise) can all be regulated equitably. The Supreme Court asked for this eleven or so years ago. The government did propose a draft broadcast bill recently, but declined to make the broadcast regulator autonomous! That bill was shelved following a storm of protest, but it is now reported that the government will bring a revised version back in the budget session of Parliament early next year.
Even if an enabling-regulator does emerge, the law that creates the regulator must transfer licensing power from the Ministry to the new regulator. Otherwise, the new non-profit radio stations that will emerge in the coming years will continue to be subject to the government's whims and fancies, merely because the government of the day issued those licenses. If the government is sufficiently convinced of the rationale for private participation in a particular sector, then it behooves it to bring regulatory roles in line with policy proclamations, and provide a level playing field for all participants. Otherwise, all the talk about 'better governance' is just that - talk.
