Are we seeing the first welcome signs of a new regulatory architecture in India?

Every game needs rules and rule keepers—and the economic game is no different. Just as cricket has seen new regulatory tools such as third umpires, slow motion replays, listening equipment that can catch the faintest snick, tools to visually track the progress of a ball from the bowler’s hand to the stumps and heat sensors, so has the Indian economy seen a new set of umpires to ensure that the game is played fairly and safely.

Many institutions that were set up to control and direct the economy in the old socialist era are now either already irrelevant or hurtling towards it. Think of the Controller of Capital Issues, the Bureau of Industrial Costs and Prices, the National Development Council, the Monopolies and Restrictive Trade Practices Commission—and even the Planning Commission, that is trying hard to reinvent itself.

Most of these regulatory dinosaurs from the Nehru and Indira Gandhi eras tried to set prices, control capacity and curb industrial expansion: These are goals that do not fit in a more open and globalized Indian economy.

We saw the first set of new regulatory institutions come up in the 1990s. Most of these were microeconomic regulators that tried to oversee a particular market rather than the entire economy: the stock market, telecom, ports, insurance, and so on. But there are now some early examples of new macroeconomic oversight and policy bodies that are coming into play.

Let’s start with the central bank first. Last month, the Reserve Bank of India (RBI) set up a financial stability unit to conduct stress tests on Indian banks and prepare periodic financial stability reports. The Indian central bank was ahead of its global peers in recognizing that maintaining financial stability is as important a task for a central bank as inflation control and credit flow are.

Meanwhile, there continues to be raging debate about whether RBI should continue as the government’s investment banker or whether its debt management function should be transferred to another independent unit. The current debate is more about the timing: Floating a new debt management office is not a good idea when bond sales by the government to fund its huge fiscal deficit threaten to overwhelm monetary policy. But the core idea is a good one.

In New Delhi, for example, there are new institutions such as the Competition Commission of India to protect consumer interests, the Unique Identification Authority of India to assign each citizen a card that will help national security and ensure that welfare programmes reach the intended beneficiaries rather than local elites, and state-level information commissioners to allow citizens to access government files.

Then there are new advisory bodies such as the Prime Minister’s economic advisory council and RBI’s monetary policy committee, both of which have independent economists as members. Meanwhile, economist and diplomat Jaimini Bhagwati wrote in a recent column in the Business Standard that the government should have a chief financial adviser on a par with the chief economic adviser; the financial adviser will “give the finance ministry a more in-depth picture of the health of financial markets and provide inputs on the state of accounting and corporate governance". This suggestions reminds me of a suggestion made a couple of years ago by the World Economic Forum that, like companies, countries too should have chief risk officers.

Another suggestion I read recently was that India needs something equivalent to the US Congressional Budget Office (CBO), which is an independent and non-partisan agency that examines government finances and provides forecasts on national debt.

CBO is independent of the US treasury. Its recent report on what the Obama administration’s huge spending plans will mean for the debt burden of future generations in the US was at odds with the administration’s own claims. Given the proclivity of our own finance ministry to habitually underplay fiscal and public debt risks, an Indian version of the US CBO is a worthwhile idea.

As is obvious, there is a huge difference in what these new institutions—both that have already come into existence and those that are on various wish lists—are drastically different from the regulators and planners of the earlier era. They do not set out to fix prices and quantities but instead try to maintain open and orderly markets. They have new concerns such as financial stability, should improve the flow of information between governments, markets and civil society as in the case of the unique identification authority, and should fully be independent on the government system as in the case of a strengthened monetary policy committee or a local CBO variant.

They could be the new umpires for a new economy.

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