North shouldn’t block

Govt, regulator mustn't get cosy, but current mistrust needs to be addressed

A former Reserve Bank of India governor, while still in office, confided that he would never keep the government in the loop on most decisions of the central bank. But the then mandarins in the finance ministry never made it easy for him. They put pressure on him on a variety of issues since he invariably needed the ministry's concurrence on policy matters. This particular governor got his way on most issues and, much to the chagrin of the officials, earned the reputation of preparing India for the financial crisis of 2008. In fact, he felt it was not necessary to meet even the finance secretary, the most senior official in the ministry, during his North Block visits. On some occasions, he would visit the capital just to meet the prime minister and would not even call on the finance minister. There were many critics who had a healthy disrespect for his domineering style, but nobody took him head on regarding his regulatory decisions. He overruled ministry interventions, backed by the quality of his decisions.

Another capital market regulator or chairman of the Securities and Exchange Board of India (Sebi) would frustrate the finance secretary of the time by not answering calls or responding to text messages. Here again was a regulator who had turned around financial institutions, knew his domain well and refused to budge from decisions despite the government's reservations.

These are just two examples to show that regulators never had an easy relationship with the government — thankfully. At times, the mandate of the government is different from that of a sector regulator. The government has political compulsions, for instance, of generating employment, increasing people's income and striving for inclusive growth. The regulator's primary role is to be a watchdog and, in some cases, promote and develop the sector. So, a cosy relationship between them may not always result in an outcome that is best for the country. However, mutual mistrust can do more harm, mar the regulatory environment and eat into the edifice of an independent, autonomous institution.

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