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Siva Prasad
Alumni- Indian Institute of Science(IISc), Bangalore; UPSC Mains'17; Promo code - akmsiva; Telegram- akmsiva

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  1. Regulatory Authorities Siva Prasad


  2. Contents . Introduction Historical Background Definition & Features Evolution in India . Issues with Regulatory Authorities . Reforms 2nd ARC Recommendations Do we need a Unified Regulator? Questions . .


  3. Introduction Regulation may be broadly understood as an effort by the State to address social risk, market failure or equity concerns through rule-based direction of social & individual action The role of State has dramatically changed from being the main provider of social & economic services to being a rule maker & regulator. . . . There are three sets of justifications for regulatory interventions :- o Prevention of Market Failure o Check Anti-competitive Practices o Promote the Public Interest


  4. Historical Backaround . By early 1980s countries like USA & UK had opted for Neo-right philosophy because of the failure of state. Markets were given more freedom & these were expected to fulfill the needs of people. But problem with markets is that these are not perfect & can never be perfect. Functioning of markets results in creation of monopolies or oligopoies. USA then came out with a solution in the form of Independent Regulatory Commissions (IRCs) to regulate the markets & at the same time ensuring their freedom


  5. Initially USA had 12 IRCs but by 2008 when stock markets in USA crashed ultimately leading to global recession, it had more than 1200 IRCs S. Thus these regulatory authorities failed to prevent the collapse of market which raised several questions upon their effectiveness. USA then responded to crisis by coming out with a Super- regulator in 2011 . It was given the responsibility to ensure coordination between various regulatory authorities & resolving conflicts between them


  6. Definition & Features A regulatory bodv is a public authority or a government agency which is accountable for exercising autonomous authority over some area of human activity in a regulatory or supervisory capacity Features:- It is established by legislative act in order to set standards in a specific field of activity, or operations, in the private sector of the economy and to then implement those standards. . These are given freedom to frame laws, rules & regulations for effective functioning of the market. . These are also given the authority to oversee the implementation .


  7. . These also enjoy semi-judicial power in case of violation of these rules & regulations by market players. . Thus these can be called quasi-legislative, quasi-executive & quasi- iudicial authorities, Some independent regulatory agencies perform investigations or audits, and some are authorized to fine the important parties and order certain measures. Regulatory Authorities ssa TRAI MERC


  8. Evolution in India * India traditionally had many regulatory authorities such as RBI, UGC, MCI, etc., to control health, education, financial & many other sectors. . But after 1991 when the LPG era ushered in, India recognized the importance of regulatory authorities due to following reasons :- o Increasing complexities & advancement of technologies; o Ensure a level playing to all market players; o Safeguard larger public & national interest and o Check consumer exploitation,


  9. .First institution established in LPG era was SEBI in 1992 to oversee functioning of stock markets. . Later other authorities also came up such as IRDA, PFRDA, TRAI, CCI, FSSAI, NHRC, NCW, NGT, CAT, etc. However the regulatory authorities largely failed to protect the interest of stakeholders:- o RBI failed to encounter NPAs & other banking frauds (PNB case). o Failed to regulate market failure & financial crisis of 2008. o Failed to curb corruption & scams such as Satyam Computers Scam.


  10. Regulators Resirve Isurance Security and Exchange State Bankof regulatory and india Development SIDBI NABARD Board of India Governments Authority Urban Cooperative Banks Insurance Companies: Public Sector and Private Sector Life and Non-Life CapitalMarket, Capitalmarket Intermediaries, Mutual Funds, Including UTI, Venture Capital, Flls, Corporate BondMarket Rural Cooperative Banks, Regio nal Rural banks State Financial Corporations, State Industrial Development Corporate Commercial Urban Banks State and All India Finanial Non-banking Government Foreign Coopera Distriet Central Institutions: IFCI, IDBI, Finance securities Exchange tive Banks Cooperative banks SIDBI, NABARD, EximBank, NHB, and TFCI Companies market and Market including primary dealers Money market


  11. Lack finalitv of Judgments o The judgments of these authorities are routinely questioned in HCs & SC o These authorities have only added one more hierarchal level in judicial administration. o It only delays the process of justice delivery . Lack Necessarv Staff o E.g., NHRC doesn't have a separate investigative mechanism of its own & it has to depend upon on state police personnel o Whereas in maximum numbers of cases filed with NHRC, police itself is involved in inflicting attrocities.


  12. Problems with multiple regulators in India Differing Standard Overlap between of Regulation andLaws and Agencies Distribution Arbitrage . Set back of economic Mutual Fund vs ULIP policy . Regulations by RBI . Ponzi Schemes . Chit Funds (Financial . Black market development Sector Regulations)


  13. 2nd ARC Recommendations . Regulation to be effective. . Regulatory procedures should be simple, transparent & citizen .Involving citizens' groups, professional organizations in the Regulation only where necessary. Self-regulation is the best form of regulation. friendly. regulation activities.


  14. Do we need a Unified Regulator? * India doesn't really require a Unified Regulator due to following o Our economy is not fully liberalized as that of USA's. India opted o Ministry of Finance still has control over the functioning of o Full capital account convertibility was the main reason for collapse reasons:- for calculated liberalization & not full liberalization. economic system acting more so like a super-regulator. of banking system in Europe. In India, we have only partial capital account convertibility. Thus its not required


  15. o Our banking system also work under the overall control of RB.I which acts like a super regulator in its area of work. o Given the diversity of objectives ranging from systemic risk to guarding individual consumer from fraud, it may not be possible for a single regulator to have a clear focused objective.


  16. Questions 1. Discuss with suitable examples, the emerging challenges faced by the Regulatory Commissions as the arbitrating agents between the State & the market forces. (2017) "If Regulatory Commissions are wholly independent, they are completely irresponsible for the doing of very imp policy determining & administrative work. On the other hand, to rob the commissions of their independence is seriously to menace the impartial performance oif their judicial work". Examine. (2016) 2.