Privatisation saw the advent of the 'Indian Regulator' that became the 'nurturer' and 'parent' of its sector. Gears were shifted from regulation by government departments to oversight by specialised/sectoral regulators to incentivise private investment by giving them functional autonomy and shielding them from interference.
Regulators and parents have the same end goal- to rear and raise 'high achievers' (sectors) but this comes with a 'Parenting/Regulating Dharma' i.e. its own set of cardinal rules and guiding principles:
Parenting (Regulating) children vs. young adults
Just as parents tend to discipline children with a 'heavy hand' to build a strong foundation/value system, regulators in nascent stages have to regulate with a 'heavy hand' to prepare a roadmap for a sector and a framework for orderly and effective long-term growth.
Regulators have put in place an enabling regime and scripted a regulatory landscape which has set the stage for Indian regulators 2.0 in Modi's 'Naya India'.
Light touch regulatory approach
The crucial questions now are- what kind of regulation is most suitable- facilitative, snoopy, harsh or subtle? How much regulation can catalyse and revive a sector? When children grow into young adults, parenting is all about 'letting go' which in the regulatory context is akin to a light-touch regulatory approach.
Regulatory 'Report Card'
Regulators have played a critical role in blooming, boosting and bolstering stakeholders and have become drivers of development. For example, the CERC as a regulator has given a fillip to the sector-major strides have been made to give access, create networks, enhance generation capacity and improve quality of service.
New age regulatory intervention must be based on empirical data/cogent evidence which warrants/justifies intervention without the influence of 'populism.' A regulatory decision must be based on economic rationale, deep thinking and be backed by economic impact assessment factoring in sectoral health, viability and stability.
Predictability and certainty require the regulatory mechanism to deal with different scenarios. A regulatory decision must be holistic, resolution-based and result oriented to nip sectoral problems in the bud.
The Supreme Court while upholding the termination of the PPA by Adani as 'valid and legal' held that compensatory tariff has to be paid on principles of economic justice and business efficacy. The court observed that commercial rights must be recognised and breach and violations of contracts must be fully compensated to maintain the sanctity of contracts.
Regulator communication must be deep, open and transparent with multi-stakeholder collaboration which would bring in a wealth of expertise, representation, accountability and innovation. Relationship between the regulator and regulated should move from industry dos and don'ts to cooperation with the endeavour of finding path-breaking and effective solutions.
Regulator as an institution
The Regulator must be fully empowered as an institution/port of call with a ready toolkit to nurse the child/sector back to health. A 'Regulatory booster shot' will provide much needed 'sectoral returns.'
Regulator as a sector developer
Take the power sector as an example. In the pre-regulatory era, the state-dominated power sector was inefficient and behest with issues such as underinvestment, shortage of power and mounting financial losses. State electricity boards (SEBs) were the masters and private investment was much needed to revive, resuscitate and revitalise the sector in turmoil. This, in turn, required a robust regulatory regime. The CERC established under the Electricity Regulatory Commission Act of 1998 and the state regulators were created in this context.
Recharge the power sector
Parental role is even more crucial when children are weak- financially weak DISCOMS trigger a domino effect on the sector as they are unable to pay power producers that results in failure to service debt and are victims of inadequate tariff hikes, underinvestment in network and regulatory uncertainty. The cure lies in prompt and timely payment based on the sanctity of contracts ('honouring the word') to prevent companies from falling into the IBC drain. This can also push India upon the ease of doing business rankings, making it a 'win-win.'
Over 52,000 MW of assets are stressed and stranded, government-owned SEBs owe power generators nearly Rs. 30,000- 40,000 crore (which is 60% more since last year). The government has not ensured its own arm pays contractual dues. Developers/investors have been 'wounded' especially as lenders go for their companies assets for non-payment of dues.
The regulator must be given all power and freedom to step in to ensure 'dead' certainty, safety of investment and returns in line with established sectoral norms/benchmarks. It is essential to empower regulators as partners in economic growth and development. The need of the hour is investment in the regulatory mechanism across the board which in turn can trigger returns and rewards for stakeholders. We must repose complete trust in regulators so they can implement and deliver.
(The author is Senior Advocate, Supreme Court of India)
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