Last week, two vitriolic exchanges kept investors and cricket fans riveted. And, if you are both a cricket fan and an investor, it was a double whammy. There is no indication as to whether either of the two battles is likely to be called off soon, so an extended public spectacle is guaranteed.
Nonetheless, two facts may have been overlooked in the distraction offered by the acrimonious exchanges. One, these incidents taken together hold out a lesson for regulation—rather emphasize the fallout of an inadequate regulatory structure. Second, it is a classic example of how the institution gets ahead of itself and forgets its core function—in this case, investors and the growing league of cricket fans.
Also Read Anil Padmanabhan’s earlier columns
First, there was the ugly spat between two regulators, the Securities and Exchange Board of India (Sebi) and the Insurance Regulatory and Development Authority (Irda). Then, just as we were getting our teeth into the nitty-gritty of the exchange, the simmering tension between the new T-20 cricket club from Kochi backed by minister of state for external affairs Shashi Tharoor and the big boss of the Indian Premier League (IPL) Lalit Modi spilled over into a nasty and personalized exchange that insinuated favours, pay-offs and illicit relationships.
The fight between Sebi and Irda was over turf. At stake were unit-linked insurance plans, or Ulips, popular hybrid financial products that combine insurance and investment. Sebi’s argument was that since they involved investment in equity, the insurance companies that sell them should register with the capital market regulator.
Like in the T-20 battle, tensions had been simmering for the past few months as both regulators sought to resolve the matter offline. The effort obviously failed, prompting Sebi to ban Ulips issued by 14 insurance companies. Irda responded by saying that it was its jurisdiction and told Sebi off—resulting in the very public spat.
Without going into the merits of the case, there is one fundamental question here: Ulips have been around for years, so why did Sebi choose to get tough now? This question is important because at stake are thousands of investors who have their life savings locked into these instruments. If it is a bad decision now, then it should have been the case earlier too. So, the more worrying issue is whether Sebi knows something that investors don’t.
The larger lesson of regulation here is that when such overlaps do occur (going forward, this is inevitable as the market will look for more sophisticated products) and two regulators differ, how does one resolve the situation without setting off panic among investors. The present solution of drawing in the ministry of finance as the third umpire is not such a good idea. The entire idea of independent regulators is designed to keep out any government influence, especially as the country swiftly moves to a market economy. Like in this case, the ministry had no answer and has transferred the resolution of the conflict to the courts—Sebi and Irda are to jointly approach the Supreme Court for clarity.
The IPL episode is a lot simpler to understand. It is a fallout of the service provider being the regulator, resulting in low credibility. We have seen before how this classic contradiction tied the government up into knots when it opened up sectors to private companies. The department of telecommunication was at once a service provider and a regulator, leading to all kinds of complications and eventually the creation of the Telecom Regulatory Authority of India (Trai).
In the case of IPL, it has been argued that it is akin to a private club and hence its regulation should be internal. This is nonsense. A brand whose value is estimated at over $4 billion (Rs17,800 crore), with millions of viewers, participation of players from all over the world, entailing investments by leading Indian corporate houses and involvement (directly/indirectly) of ministers in government such as Sharad Pawar and Shashi Tharoor cannot get away with the claim of self-regulation, especially since the show is only going to get bigger (it has already transformed the viewing demography by drawing female audiences, besides completely turning the format of cricket on its head).
What has complicated matters is the centralization of power in the hands of Modi. As the brand value has surged (four times since its inception three years ago), so has his clout, triggering even greater envy. Without sitting on judgement on Modi, it is apparent that this is bound to call into question every decision that the powerful IPL commissioner takes. And, if he breaks the confidentiality rules, as he clearly did by tweeting the shareholding pattern of the Kochi club, then all the more.
The danger the Tharoor-Modi and Irda-Sebi episodes pose is of one getting caught in their captivating rhetoric. To quote a cliché, it is easy to miss the woods for the trees. There is a danger of overlooking the interests of cricket fans and investors—without which, lest all sides forget, the phenomena wouldn’t have existed.
So the trick is to put in place the right regulatory structure. But is anyone listening?
Anil Padmanabhan is a deputy managing editor ofMint and writes every week on the intersection of politics and economics. Comments are welcome at firstname.lastname@example.org