Independent Regulatory Agencies: A Theoretical Review with Reference to Electricity and Water

in India
Author(s): Navroz K. Dubash
Source: Economic and Political Weekly, Vol. 43, No. 40 (Oct. 4 - 10, 2008), pp. 43, 46-54
Published by: Economic and Political Weekly
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Independent RegulatoryAgencies: A Theoretical
ReviewWithReferenceTo Electricityand Water in India
NAVROZK DUBASH

agencies have become an

Independentregulatory creation of independentregulatoryagencies is a
partofthegovernancelandscapeinIndia
important relativelyrecentphenomenonin India, and indeed in
muchof the developingworld. Worldwide,one study
and elsewhere.Some regulators haveachieveduseful
(includingbutnotlimitedto utilities)foundthatthenumberof
outcomes.However, thecreationofindependent new regulators(includingbut not limitedto utilities)created
sectoralregulators inIndiahas notbeen accompanied per year burgeonedfromless than fivebetween the 1960s
critical
reflectionon their
role,or attention
to the and 1980s to morethan 20 in betweenthe 1990s and 2002
by
(based on a studyof49 countriesand 16sectors),witha peakof
legal,and institutional
political, contextswithinwhich
almost40 new agenciesa yearin theperiod1994-96(Jordana,
theyoperate.Thisstudyexploresvarioustheoretical Levi-Faur, and Marin). Clearly, independent regulatory
perspectives on thepoliticaleconomyofregulation, and agencieshave become an importantpart of the governance
elaborateson the implications these haveforelectricity landscape worldwide,increasinglyso in India. In the Indian
and waterregulation inIndia.The paperfocuseson public service or utilitiessectors,independentregulationis
well establishedin télécomsand electricity,
and maynow be
threethemes:whygovernments createindependent emergingin water.
themeaningof"regulatory
regulators, governance"
1 Introduction
and how regulatorscan
and how itcan be improved,
Whatdo I meanby"independent regulation"? Whileregulation
addressconcernssuchas socialissuesembedded in
in someformhas alwaysbeen a keypartofthestaterole,inde-
economicdecision-making. pendentregulatory agencies (iras) are distinguished by being
separatedfromtheexecutivebranchofgovernment so thatthey
function independently. Morandefinesregulation as "theadmin-
istrativetechnology ofcontrolling businessthroughlaw-backed
specialisedagencies".Originating intheus, thisapproachspread
to theEuropeanUnion(eu), and, particularly duringthe1990s,
tothedeveloping world.
This paper is motivatedby a perceptionthat the dash to
create independentsectoralregulatorsin India has notbeen
accompaniedbycriticalreflection on theirrole,or attention to
the political,legal, and institutionalcontextswithinwhich
they operate.1 This is not to say that these institutions
have been unhelpfulor shouldnothave been created.Butitis
to say thattheirfunctioning has been considerably muddled,
and occasionallyundermined, by a failureto ask and develop
answers to the broader questions about the role of inde-
pendent regulators.For example, given theircontrolover a
sub-set of economic decisions, how should regulatorsbe
Anearlierversionofthispaperwas presentedat a "National
placed under politicalcontrol,while not compromising their
Consultationon Regulationand thePoor",jointlyorganisedin Delhion
independence? Is it possibleto draw a clear line between the
2007 byPrayas(Pune) and theCentreforStudyofLaw and
July12-13,
Governance, JawaharlalNehruUniversity, NewDelhi,withsupport economic and social content of decision-making,or do
fromtheFordFoundation. forcomments
I am grateful fromPrayas regulatorshave to be attentiveto social concernswhilemaking
at theworkshop,
colleagues,participants and reviewssubmitted economicdecisions?Forinstance,ineliminating cross-subsidies
throughtheopenreviewprocessofEPW.Allerrorsand opinions theme in are
(an important India) regulators likelyto impose
remainmine.
costson the poor and the vulnerable.Shouldtheybe required
NavrozK Dubash(ndubash@gmailcom)is at theCentrefortheStudyof to balance these agendas or should social issues be dealt
JawaharlalNehruUniversity,
Lawand Governance, NewDelhi.
withelsewhere?These are thekindofissuesthatmotivatethis
& Political
Economie weekly Q3S3 October 4, 2008 43

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paper.Addressing thesepolitical,legal, and institutional ques- "independence" becameapparent.The oerc didnotraisetariffs

tionswillbothhelpstrengthen existingregulatory bodies, as well to attract investors as reform designershad assumed,butinstead
as helpmakeinformed decisionsabouttheneed for new regula- expressedconcernthatconsumersshouldnotbear the cost of
toryagenciesand theirstructural design. past mismanagement. While the government lost controlover
To stimulateand contribute to thisbroaderdiscussionon the usingtariffsforpopulistand otherpoliticalends, so did the
roleofindependent regulationin governance,I explorevarious reformers as a meansto attractinvestors. TheOrissaapproachto
theoretical perspectives on the politicaleconomyof regulation, regulationhas rapidlyspreadto otherstates,and was adopted
drawingfromtheinternational literature on thetopic.2Whilethe moreor less intactbythecentralgovernment in theformofthe
paperis predominantly theoretical, I beginbygrounding thedis- Electricity Regulatory Commissions Act(1998).
cussionwitha shortreviewofthestatusofelectricity and water The Electricity Act(2003) has retainedbutextendedthesame
regulationin India,to understandthe concernsthatmotivate approach.In practicalterms,regulatorshave a centralrole in
debatetoday.The bodyofthe paperis organisedaroundthree implementing bothelectricity marketsand therule-basedmech-
theoretical themes.First,I deal withtheunderlying theoriesof anismsforregulatingtariffsand qualityof service.Giventhe
regulation - how do we understandthe reasonforestablishing continuedsalienceofregulators, the2003 Actprovidesno solu-
iras and whatframeworks can we drawon to understandhow tiontothelargerstructural problem, whilegovernments formally
theyworkin practice?Second,I exploretheidea of"regulatory committhemselves to tyingtheirhandsto themastbyestablish-
governance," whichexaminesdifferent ways of understanding ingregulators, thoughin practicetheyuse verylooseknots.
how theregulatorinteracts withgovernments and otherstake- In sum,electricity regulators wereintroduced as a wayto sig-
holders.Finally, I turntosomeconsideration ofthescopeofregu- nal credibility to attractinvestment ratherthandirectly helpthe
latory action,particularly examining whether there is a clear line consumer. Moreover, given that regulators regulate state-owned
betweeneconomicgoalson theone hand,and socialorenviron- enterprises, theregulatory systemrequiresonebranchofgovern-
mentalgoalson theother.I concludebybriefly returning to the mentto regulateanother.5As a result,perhapsthe mostfre-
electricity andwatercontextinIndia. quentlycitedconcernis thatregulators are notreallyindepend-
entofthegovernment, and therefore failto achievetheprimary
2 Electricityand Water Regulation in India objectiveforwhichtheywereestablished.Otherconcernsfocus
I beginwitha shortoverviewofelectricity and waterregulation on how best to improveregulatory effectiveness by improving
inIndiatounderstand contemporary and
concerns, highlight the institutional capacity and procedural robustness.6 Anadditional
importance of the political and institutional context for regula- challenge is their role in moving a sector towards competitive
tion.Electricity regulation has a track record of just under a dec- market structures, which raises important questions abouthow
ade in the with
country, regulators operating in almost all states. to balance efficiency and social safeguards.
In contrast, waterregulationis an entirelynew area, withonly Turning to water,independent regulationis initsearlystages,
onestate,Maharashtra, havingformally established a regulatory and raises quite different questionsfromthosein electricity. A
agency.Below,I describe each sector in turn. water regulator was constituted in Maharashtra in 2005, and leg-
Since independence, state-leveldepartments have regulated islationtointroduce waterregulators is inprocessinatleastthree
public-owned StateElectricity Boards (sebs).3 The first departure other states- Arunachal Pradesh, Gujaratand Delhi [Warghade
in
fromthismodeloccurred Orissa, part as of a larger World 2007]. As with electricity in Orissa, theMaharashtra waterregu-
Bank-supported programme of reform and restructuring of the latorwas established as part of the larger World Bank-supported
SEB,aimedat "unbundling" the componentpartsof the sector, "Maharashtra WaterSectorImprovement Program". Withinthe
introducing management and
reforms, privatising the sector.4 In programme, the Maharashtra Water Resources Regulatory
practicalterms,thekeyroleoftheregulator was takingoverthe Agency(mwrra) is tasked with regulatingand facilitating
tariff-setting role of the government, but also moregenerally judicious,sustainableand equitablemanagementof water.Its
exercising oversight thatallowedtheproducer'sand consumer's functional tasksincludedetermining entitlements, establishing
needstobe balanced.The visionforregulation within the larger tariffs, reviewingprojects,and addressingotherconcernssuch
reform projectwas "...toensurethesustainability oftariff reform as conservation.
... interalia to attractsufficient and
privateinvestment protect Whilethemwrrais toonewtohavea trackrecord,itscreation
theinterests ofconsumers"[WorldBank1996;7]. To do this, the itselfposes important questions.One set ofissuesrelatesto per-
regulator was "...to insulateOrissa'spowersectorfrom gov- the ceived weaknesses in its procedures,whichcould come in the
ernment and ensureits... autonomy". of
In otherwords,thefunda- way ensuringtransparency, participation and accountability
mentalpurposeofelectricity regulation was to createan apoliti- [Warghade2007]. Even more significant, mwrra controls
the
cal spaceforelectricity decision-making, bothto senda signalof key decisions such as allocatingentitlements overwater,and
credibility toinvestors andtoprotectconsumers. and
Thusregulation establishing regulating water trading to ensure thatwater
has been based on thesomewhatquestionablepremisethatitis goes to the highest value user,decisions which carrysignificant
feasibleto create an apolitical regulatorysphere simplyby potentialsocial consequences[Dharmadikary 2007]. How will
legislating one. the associatedtrade-offs betweensocial objectives,economic
Once the Orissa Electricity RegulatoryCommission(oerc) objectives, in
and efficacy regulation be managed?In additionto
began its work, the double-edged nature of regulatory theseoperationalquestions,theverynewnessoftheregulatory
46 October 4, 2008 Q3S Economic& Politicalweekly

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experiment in watersuggestsan even morefundamental ques- neutrality and competency - as well as theexistenceofa single
tion:is independent the
regulation right mechanism for govern- correct answer, are problematic, as I discussfurther below.
anceinthewatersector? Second,thisapproachundulylimitsthe scope ofregulation.
Whatissuesdoes thisbriefreviewthrowup fordiscussionof Scholarssuchas Sunsteinsuggestthatthereare groundsforreg-
independent regulation in India?The case ofelectricity suggests ulatingin thepublicinterest whenvarious"substantive" values
thatregulatory independence from the executive is not easily such as social justice,diversity, or redistribution are involved
achievedbythestrokeofa pen. It also pointsto concernsover [citedin Morganand Yeung2007: 27]. Sunsteinnotesthatthe
howprocedures are implemented inpractice,something thecase choicesthatindividualsmakeas consumersmaynotbe equiva-
of waterpotentially shares.In bothelectricity and water,as crit- lentto thosetheymakeas citizens;as citizenstheymaywishto
icshavepointedout,theWorldBank'srolein promoting regula- livein a societythathas attributes thatcannotbe obtainedsim-
tory formation has led to an on
emphasis usingregulation as an plybybuyinggoods as a consumer. NotethattheMunnjudg-
instrument of financial reform, to the possible exclusion of other ment,although delivered in the context ofa privaterailmono-
concernssuchas equity,equal access, and environment (ibid). poly,suggests that pursuit of the "common good" is an over-
Most fundamentally, both cases suggest the challenge of arching rationale for regulatoryintervention, whichprovides
resolvingpotentialconflicts and trade-offs between social and legalspace forintervention beyond the narrow case ofmonopoly
economicobjectives. to include substantive values.
Whether, and how,regulators are structurally equippedto deal Ifsuchsubstantive valuesare tobe promoted intheregulatory
withtheseissueswas inadequatelyconsidered when regulatory process,however, then we have to move beyonda visionofregu-
- -
thoseforelectricity wereestablished, lators as a neutral technical to one capable of choosing
agencies in particular entity
and even now it has receivedonlyincompleteattention.7 With between alternative social values. This leads immediately to a
electricity regulation ripefora review,and waterregulation of
only discussion regulatorylegitimacy; since regulators are une-
nowbeingintroduced, itis appropriate thatwe takea fresh lookat lected,how do theyderivethe legitimacy to make alternative
theories and ideason thesubjectto understand howindependent socialchoices?One influential answer,givenbyProsser(1999)is
regulation canbe a toolforgovernance, as wellas itslimits. thatregulatory legitimacy is derived fromprocedural robustness,
which allows forsocial choices emergefromdeliberation
to
3 Theories of Regulation withinregulatory processes.I returnto thisthemebelow.
The literature on regulationis voluminous,and spans political Thepublicinterest viewofregulation is criticised foritsnaivete
science,law and sociology,as well as economics.Each ofthese aboutthegoodintents ofregulators, a critiqueparticularly devel-
traditions framesitsquestionsin different ways.One usefulway opedbytheprivateinterest theoriesthatfollow.Moreover, when
to cutacrossdisciplines, however,is to groupthetheoriesunder regulationextendsbeyondthevisionofneutral and competent
thecategories ofpublicinterest, privateinterest, and institution- regulators applyingwell-known principles to regulators as social
alisttheoriesofregulation[Morganand Yeung2007]. decision-makers, thepublicinterest viewofregulation raisesalso
concernsaboutlegitimacy and accountability.
3.1 Public InterestTheories
Writings on regulation have theirlongesthistoryin theus. The 3.2 Private InterestTheories
intellectualjustification forregulation appearedinan earlyjudg- Privateinterest theoriesofregulation beginwitha critiqueofthe
mentoftheus SupremeCourt,Munnvs StateofIllinois,which publicinterest view as politicallynaive.Theyquestiontheopti-
dealtwithwhethera legislativeassemblycould limittheprices misticassumptionthatsimplybecause a case can be made for
chargedbyprivaterailwaycompaniesforstorageofgrainbeing promoting the publicinterest, regulatory actionswillindeeddo
transported by those railways. In this frequently cited judgment, so. They suggest, instead, that regulators emergeto servethe
thecourtruledthatwhen"...onedevoteshis property to a use in privateinterests ofindividualsor organisedgroups.Iftheyalso
whichthepublichas an interest, he,ineffect, grantstothepublic servethe publicinterest,thenthatis merelya fortunate side-
an interest in thatuse, and mustsubmitto be controlled bythe effectofservingprivateinterests. Thereare manyvariationsof
publicforthe commongood..." [TouroLaw Centre2005]. The theprivateinterest view,includinga Marxistperspective which
is
judgment significant because it provides a basis for state con- sees regulatory agencies as a sort of franchise on public power
troloverprivateproperty whenthepublicinterest is involved. handedoutbythestateto privateinterests [Moran2002].
The mostcommoninvocationofregulationin thepublicinter- Perhapsthe best knownelaborationof the privateinterest
estis thatofregulating monopolies.Fromthisperspective, regu- approachis thetheoryofregulatory capturemostcloselyassoci-
lationis a substitute forcompetition, wherecompetition is not ated withGeorgeStigler(1971).Stiglerarguesthat"as a rule,
possibleforreasonsofnaturalmonopoly,8 forprovision ofpublic regulationis acquiredbytheindustry and is designedand oper-
goods, or to address externalities. From this startingpoint, the ated primarily for its benefit." Indeed, "... theproblemofregula-
of
goal regulation is clear: to increase allocative efficiency. tion is the problem of discovering when and whyan industry (or
the of
However, practice regulation is seldom that straightfor- other group of like-minded people) is able to use the state for its
ward, for at leasttwo reasons. First,perspective regulation rests purposes."9 An interesting variant of the capture theory (which
on neutraland competent regulatorsreliablychoosinga single precededStigler'swork) suggeststhat regulatory agenciesgo
correctanswer to regulatoryproblems.Both assumptions - through a life-cycle, characterised by an early pioneering spirit,
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onlyto fallpreyto captureas theydevelopincreasingly close excludedfromit,and seekingto understandwhy.The authors

relations withindustry [Bernstein, citedinMoran2002]. suggestthatexclusionis oftendrivenbythedetailsofinstitution-
workis partofa largerschoolof"publicchoice"theo- alisedproceduresuchas standardoperating
Stigler's procedures and cus-
riesthatplace the emphasison regulationas the outcomeof a tomaryassumptions.As a result,national peculiaritiesalso
politicalmarketplace in whichvoters,politicians and bureaucrats become important;regulationis not the same everywhere. In
all workto maximisetheirself-interest. Morerecentversionsgo sum,theregulatory space idea prompts us to look at the empiri-
beyondotherforms ofthecapturetheory bymovingbeyondonly cal specificsofregulatory spaces,includingnationallegaltradi-
the bilateralrelationshipbetween regulatorand regulated. tions,organisational actors,and specificprocedures.
Regulation maybe designedto further theinterests ofa political The idea of responsive regulationmakesthe paradoxicalsug-
eliteandtopreserve itspower[Cooketal 2004]. Forexample,the gestionthatregulation shouldaimforan optimallevelofcapture
regulatory bureaucratmaycolludewithboththe regulatedand [Ayresand Braithwaite 1992].Too muchinteraction ofthewrong
politiciansto maximise hisagencybudget.The prescriptive impli- sortriskscapture,butequally,too littleinteraction and limited
cationofpublicchoiceis torelyon themarket wherepossible,and regulatorydiscretion - typical solutions proposed to the
severely limitrelianceon regulation and regulatory agencies. problemof capture- riskrigidity, limitinnovation, and stifle
The maincriticism oftheprivateinterest viewis itsabsolutism cooperation.The proposedsolutionis regulatory "tripartism",
[MorganandYeung2007]. Whilethismaybe a necessary correc- wherea thirdactor,civicassociationsor"publicinterest groups"
tiveto thenaiveteof thepublicinterest view,it leavesno space (pigs),is introduced as a "fullyfledged"playerin theregulatory
whateverforexpression of the publicinterest. Forthe theoryto game.As suggestedhere,pigshaveaccessto all theinformation
serveitspredictive role,all actionhas to be understood as entirely availableto theregulator, have a seatat thetablewhenall deals
self-serving,andself-serving intermsofeithernarroweconomicor are done,and haveequivalentstandingtosue as doestheregula-
politicalreturns. Moreover, thecapturetheoryhas beencritiqued tor.Accountability ofpigsis accomplished eitherthrough compe-
forexercising a circular formofreasoning:ifa regulation benefits titionforassumingtheroleofa pig,mostlikelythrough a vote,or
an interest,itmusthavebeendesignedtodo so.Thisformofthink- makingthemaccountableinsomewaytootherpigs.Notably, the
ingexcludescompeting explanations. Atthesametime,thepublic pigneed notbe a disinterested party.Forexample,tradeunions
choicevariantofprivateinterest theoriesdoes seemto resonatein couldbe involvedin occupationalhealthand safetyregulation,
theIndiancontext, given that electricity and waterutilities are for or an industry associationof flourgrinderscouldhelpregulate
themostpartownedbythepublicsector. Whilelittlehasbeenwrit- wheatprices.The idea is thatinsidersmaybe theoneswithboth
tenonsituations wheretheregulated entity ispubliclyowned,as is information and intereststo participateeffectively, and in pro-
oftenthecaseinIndia,thepublicchoiceperspection thatallowsfor motingtheirown interests, willalso promotethelargerinterest.
"politicalcapture" mayyieldsomeinsights. Morebroadly,in different circumstances, responsiveregulation
may involve delegating regulation to pigs, unregulated competi-
3.3 InstitutionalistTheories tors,orevenself-regulation bycompanies.Anunderlying idea is
Whilethe theoreticalcategoriesof publicand privateinterest thatto achievetheobjectiveofeffective regulation withlimited
viewson regulationare well establishedand widelyused, the interference, conditionsshouldbe createdwherepersuasionis
institutionalist category is somewhat less cogent.Morgan and the dominant strategy. Commandregulationwithpunishment
Yeung (2007) suggest the term "institutionalist" to capture the must remain a realistic,butlittleused,threat.This idea is cap-
rule-based(formaland informal)explanationsof these ideas, turedin theimageofa regulatory pyramid, wherethebroadest
theirexaminationof internalinstitutional dynamics, and their partcomprises self-regulation and the narrow top,commandand
commonefforts to blurthe dividebetweenpublicand private punishment.In a subsequentpaper,Braithwaite (2005) argues
rules. Here,I briefly discussthreesuchapproaches:"regulatory thatdevelopingcountries witha regulatory capacityproblem are
space","responsiveregulation", and a "stakeholder model" of particularlyripe for responsiveregulation in a model of
regulation. The firstis largely focused on providing a model with "networked governance", where the regulatory state relies
whichto understand regulation, whilethelattertwohave clear heavilyon non-state actorstoparticipate inthetask.
normative implications. The role of external actors beyondregulatorand regulatedis
The regulatory space idea associated with Hancher and Moran also centralto Prosser's (1999;2005) stakeholder modelofregula-
(1989) starts the
byquestioning assumption that there can be a tion. Similar to the regulatory space approach wellas tripart-
as
distinctand inviolablepublicsphereseparatefromthe private. ism,regulationis explicitly understoodas a network ofrelations
Instead,theyargue that under advanced the
capitalism, large that includes not and
onlyregulator regulated, but also competi-
companiesbeingregulatedcarryoutmanyfunctions ofan essen- tors,consumers, employees,and so on. Butnow regulators are
tiallypublic nature. Thus,they do notjustprovide basic to
services, expected explicitly pay attention to the interests of different
theirdecisionson investment, employment, outputand research stakeholder groups,and seekto achievea balanceamongthem.
haveimplications thatcarryovertothepublicsphere.Hence,the The legitimacy ofregulators is thentiedto howwelltheydo so.
keyquestion becomes not trying toforce and
apartpublic private, Note that this is exactly oppositeofwhatcomesout ofthe
the
butbetterunderstanding the space withinwhichorganisations capturetheoryof Stiglerand others.The stakeholder approach
withthesemixedattributes interact.Doingso requiresnotonly leads directlyto a focuson strongproceduresin theregulatory
lookingat those withinthe regulatoryspace, but also those processto ensureopennessto a fullrangeof interests. Prosser

48 October 4, 2008 CQS1 Economic weekly

Apolitical

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also takestheargument further and arguesforexplicitefforts to languageof "transaction cost"economics.10 The taskofregula-
for
compensate inequalities power in or information across dif- tion was understood as the
narrowly limiting scopeforarbitrary
ferentstakeholder groups. Not surprisingly, the main problem administrative action (such as expropriationor politically
withthistheoryis thechallengeof implementability, bothcon- motivated tariff setting),therebycreatingconditions favourable
ceptual and practical.Conceptualchallenges with implementing to investment.
this approachincludethe difficulty of developingcriteriato Thekeyinsight ofthepaperwas thatwhilemuchattention had
determine whichinterests shouldbe considered,how to weigh been paid byeconomiststo regulatory incentives - howregula-
them,and how to decide among them. Practicalchallenges torscoulduse theirtoolsto set incentives forefficient perform-
includemanagingthepotentialriskofdeadlock,and implement- ance- toolittlehadbeenpaid tothe"mechanisms thatsocieties
inga moreproactiveformofstakeholder regulation whichcom- use toconstrainregulatory discretion and resolveconflicts ..." In
for
pensates existinginequalities. other words,regulatory governance.Understanding these mech-
Institutional theoriesshare the commonaim of bringing anismsrequiredexploringissuessuchas theseparationofpow-
morerealismto understanding regulatory processesthaneither ers betweendifferent branchesof government, the extentto
public interest or private interest theories. Public interest theo- which the judiciary could be counted on as a disputeresolution
in as
riesare naive seeingregulators straightforward agents of forum, whether bureaucracies were strong weak, and other
or
the publicinterest,do not provideany answers to situations features of the larger political environment within which
wherethemeansoflimitingmonopolypower are unclear, and regulation operated.Notably, Levy and Spillerconcluded thatthe
provideno basis forpursuingsubstantive aims throughregula- model of independent regulatory agencies was onlyappropriate
tion.Privateinterest theoriesswingtoo farin theoppositedirec- in a limitedset of contexts,and in othercontexts,the use of
tion,and tautologically equate regulationwithcapture,though contracts,or continuedpublic ownershipand control,were
theyprovidea usefulcorrective to thenaïvetéofthepublicinter- moreappropriate.
estperspective. Forthesereasons,I suggestthatan institutional-
istperspective is a usefulstarting pointforconsidering regulator 4.2 Delegation and Regulatory Creation
agenciesinIndia.Fromthisbriefreviewofa fewleadingtheories A moreoverarching framework withinwhichto understand reg-
ofregulation, it emergesthatwithan effort at realismcomesa ulatorygovernanceis theissueofdelegation.Regulation is char-
greaterattention tothewiderweb ofstakeholders thatsurround acterisedby the delegationof authority fromelectedbodiesto
a regulator: thatregulatory space theoriesexplicitly call atten- "non-majoritarian" institutions,that is, those that exercise
tiontoactorsthatsurround theregulator; thatresponsive regula- authority but are not directlyaccountableto the people. The
tionemphasisesinteraction betweenregulator, regulated,and problem, then,is toexplainwhyelectedbodieswouldvoluntarily
otherstakeholders; and thatstakeholdertheoriesstartby pre- chooseto delegateauthority, and withwhatconsequences.The
sumingthatregulators shouldbe designedto servetheinterests problemis further madecomplexbytheneedto considerwhere,
ofstakeholders. Whilethereremainmanyunansweredquestions in fact,authority does residepriorto delegation.As Anantand
abouthowto practically engagestakeholders, theliterature sug- Singh (2006) note with referenceto the Indian Constitution,
gestsa commonattention totheimportance oftheirrole. whenthereis a "weak"separationofpowers,theproblemis not
onlyone oflegitimate delegation, butalso effective delegation.
4 RegulatoryGovernance Typicalanswers to the problemof why delegationoccurs
The abovediscussionsuggeststhatregulators have to takeon a includegovernments' desireto signalcrediblecommitment (for
significantly expanded role, indeed, as Prosser (1999) puts it,be example, by handing over tariff decisions they promise not to
"governments in miniature". This is at a considerable distance interfere in), overcome information asymmetries (specialised
fromthevisionof regulatorsas narrowlyfocusedentitiesthat bodiesmaydo betterat unearthing information), and avoidtak-
derivetheirlegitimacyfromtechnicalexpertiseand political ingblameforunpopularpolicies(byblamingdecisionson "inde-
neutrality alone,as withthesimpleversionofthepublicinterest pendent"regulators)[Thatcherand Sweet2002]. These are all
theory. requiresexploringfurther
It how regulatorsfitWithin, functional explanations(thatis, theexistenceoftheregulator is
and are shapedby,largergovernancestructures, and howregu- explainedbythefunction itis meantto perform) consistent with
latorsoperatewhentheyare viewedas a governancestructure. thetransaction costframework ofLevyand Spiller.
In thissection,I discusshow the conceptofregulatory govern- However,thereare other,moresociologically orientedexpla-
ance arosefromthe imperative of protecting investorinterests, nationsto explaintheproblemofdelegation.Sociologists argue
and also howtheconcepthas progressively been broadened,so thatinstitutions suchas independent regulators spreadbecausea
thatit can equallybe understoodto focuson questionsof the perceptionis createdthrougha complexprocessofsocial con-
accountability and legitimacy ofregulation tothepublic. struction thatregulationis thebestsolutionto a particular type
ofproblem.Onceconstructed, regulators maybecreatedthrough
4.1 An InvestorPerspective an epidemicofborrowing, oftenforsymbolicreasons[Thatcher
The term"regulatory was
governance" popularisedbyLevy and and Sweet 2002]. The result is thatregulationas a formofgov-
Spiller(1994) in a path-breaking paper. The paper was significant ernance becomes more legitimatethanothers,and indeed,can
forintroducing regulatory economists to issues that had hitherto favour one set of actors over another.Moreover,institutional
beenthedomainofpoliticalscientists, and fordoingso usingthe designbycopying- "isomorphism" insociologicalterms- can

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also occurthroughcoercivemeans,throughthe impositionof ofregulators tiedtotheeffectiveness oftheirpublicparticipation

conditionsas has occurredinEurope(suchas regulationas a pre- processes[usaid 2005].
conditionforentering theeu), and throughdonorconditions, as Therehave also been multipleefforts to examinedemocratic
in manydevelopingcountries. Thissociologicalexplanationcer- regulatory governance inIndia,withmostoftheworkfocusedon
tainlyappearsto fittheway in whichelectricity regulation,for the electricity sector.A surveyof regulatorsby PrayasEnergy
example,spreadinIndia.11 Groupexaminedthe functioning of multipleelectricity regula-
tors,documentingseveral loopholesin regulatory procedures
4.3 Problem of Accountabilityand Legitimacy [Prayas2003]. The Electricity GovernanceInitiativeconcludes
Viewedfromtheperspectiveofdelegation,thecreationofiras thatwhilelegal proceduresare relatively robustin India'selec-
raises questionsbeyond Levy and Spiller'snarrow concern tricity regulation,the "software"of selectionprocesses,use of
withsignallingpredictability to investors,to largerissues of procedures, and civilsociety'scapacityto use thoseprocedures
legitimacyand accountability. If democratically elected legis- pose problems[Mahalingamet al 2006]. A case study-based
laturesand appointedexecutivebodies hand overa portionof analysisof threestateregulators- in Delhi,AndhraPradesh
theirpowersto regulators,then it is incumbenton themto and Karnataka- foundthat while public participation has
ensure that the regulatorsare also accountable in some broughtsome gains, the degree of confidencein regulatory
form.Moreover,ensuringaccountability is a precondition for stakeholderprocessesis well shortof thatrequiredto confer
regulatory legitimacy. legitimacy on existingregulators[Dubashand Rao 2007].
The questionofhow to ensureregulatory accountability was In some ways,the literatureon regulatory governancehas
thesubjectofa substantial studybyUnitedKingdom'sHouse of gone full circle.The early literatureexploredthe conditions
Lords,entitled'The Regulatory State:EnsuringitsAccountabil- underwhichregulators couldserveas a wayaroundtheunpre-
ity'(House ofLords2004). The Britishexperienceis ofinterest dictability in decision-making thatcomes withthe roughand
because manyexperiments in developingcountries,including tumbleof politicalprocesses.More recentliteratureseeks to
India, have followedthe attemptsmade by the uk in utility explorewhetherthe fullrangeof interests are sufficiently well
and
restructuring, regulation and competition in areas such as represented in regulation, evoking Prosser'sidea of regulation as
electricity and water. The Lords study suggests accountability "government in miniature". Regulation, itwould appear, cannot
shouldbe achievedthrougha three-part approach:the dutyto legitimately bypasspoliticalprocesses.Instead,thequestionthat
explain backed by robust to
processes;exposure scrutiny, includ- now emerges is whetherthroughattentionto proceduresand
ing but not limited to parliamentary and
scrutiny; scope for inde- processes, regulation can be botha robustand efficient process
pendent review and appeals.Moreover, itcalls fora "360 degree" for representation ofinterests
viewofaccountability, wherebytheregulatoris accountablenot
onlyto parliament, ministersand courts,but also to citizens, 5 Regulation and Social Objectives
interestgroups,consumerrepresentatives, individualconsum- To summarisethe argumentso far,the institutionalist perspec-
ers,and regulatedcompanies. tiveprovidesa middleroadbetweentheextremesofpublicand
As Prosser(1999) notesin his discussionof the stakeholder privateinterest theories.Itthereby reclaimssomespaceforregu-
model of regulation,this vision of regulatoryaccountability lationin thepublicinterest, althoughwiththecautionthatpar-
places considerable emphasis on robust procedures, particularly ticular attentionhas to be paidto thenationalandhistorical con-
to ensureopen access to information and participatory proce- text. It cannot be taken for granted that regulation willact in the
duresin regulation.Fromthisperspective, "regulatory govern- public interest.The discussion on regulatory governance led us to
ance"movesfromtheinvestor-focused on
emphasis predictabil- consider the of
importance procedures as a of
way providing
ityespousedbyLevyand Spillerto a citizen-focused emphasison space forthe fullrangeof stakeholders, therebybolstering the
democratic accountability.12 and
accountability legitimacy ofthe regulatory process.
This perspectivehas recentlyinspiredboth theoreticaland Arerobustproceduresthatprovidespace forthevoicesofall
empirical workthatsuggestswaysto improveregulatory govern- stakeholders a sufficient basis forregulatory effectiveness and
ance. Palast et al (2003) argue thatthe democraticchecksin legitimacy? As Prosser(1999) argues,robustproceduresstill
place in theus regulatory systemhave servedwell and resulted requiresomebasisonwhichalternative competing interestsareto
in a relativelywell-functioning electricity system. H ira et al be weighed and prioritised. In other words, even procedurally
(2005) reviewthemechanismsforpublicparticipation in opera- robustregulatory processesrequiresome"substantive" guidance.
tionin different electricityregulatorsaroundthe world.These
rangefromthecommonpublichearingmodel,and a publicsur- 5.1 Market Efficiencyas Substantive Value
veyand researchmodel,to directpublicparticipation. The Elec- The latestwave of regulatory agencieshas comebundledwith
tricityGovernance Initiativeis an effortto an
develop analytical publicenterprise reform and privatisation.As a result,maximis-
framework forgovernanceproceduresin electricity, including ing economic efficiency has either implicitlyorexplicitly emerged
butnotlimitedtoregulation, and applyittofourAsiancountries, as the predominant substantivegoal of the regulatory process.
includingIndia [Nakhooda,Dixitand Dubash 2007]. That the This is certainlytrueof Indian electricity, and is also a major
concepthas becomemainstreamis exemplified by a us Agency factorin theprocessesemergingforwaterregulation. Combined
forInternational DevelopmentStudywhichsees the legitimacy with the goal of regulatorypredictability, utilityregulation
50 October 4, 2008 QSQ Economic& Politicalweekly

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has emphasised formula-based,predictableregulationthat 5.2 The Search forWorkable Substantive Principles
achieves the goal of efficiency enhancement.13 In practice, An important precondition forregulationas a meansofgovern-
however, this approach has provedproblematic, conceptually ance is for the policyprocessto determine thesubstantive princi-
and practically. ples(or outcome-oriented goals) thatwill guideregulators. There
On theconceptualplane,Stewart(1975)notesseveralobsta- are twopartstothetask.
clesto usingeconomiclogicas a determining ruleforregulation: First,the broad substantiveguidelineshanded down to
applied economics is an art that often producesmultiple, not sin- regulators fromthelegislature needtobe defined, anddoneso in
gle answers;preferences over alternative choices do not remain an open and transparent fashion. Atthe moment, theElectricity
fixedbychangeovertime,leadingto questionsaboutwhichset Act2003, forexample,providesa longlistofregulatory tasks,
ofpreferences decisionsshouldbe based on; distributional con- butdoes notset clearpriorities forhow competing prioritiesare
cernsare inadequately addressed; and economic analysis leaves to be met.14
no space for"processvalues"on whichlegitimacy depends. In Second,keepingin mind that regulatorydiscretioncannot
herinsightful of
analysis largerregulatory trends,Morgan(2003) entirely be legislatedaway,theliterature suggeststheneedfora
arguesthatcompetition, or the prioritisation of market logic, robust set of procedures that allow discretion to be legitimately
castsa "shadow"oversocialcitizenship, bywhichshe means the in
applied keeping with substantive principles. One interesting
aspirationto growingequalityand fairnessin the social and to
approach defining these principles suggestthattheproce-
is to
economicspheres. duralistapproach(interest representation through robustpartici-
Froma practicalviewpoint,the experienceof the uk, the pation) can onlyworkunder conditionsof certainminimum
benchmark forregulatory reforms, is usefulto consider.The first socialwelfarerights.Then implementing theserights - suchas
uk electricity StephenLittlechild, -
is knownforformu- the rightto water,a livelihood,etc thenthemselves become
regulator,
latinga price-setting formula linkedto theretailpriceindexthat partoftheregulatory objective[Prosser1999].
purportedto automatically promoteefficiency while reducing Arguments againstimplementing substantive goals- suchas
discretion. In practice,however,theformulahas had ensuringreasonablypricedaccess to waterand electricity -
regulatory
tobe modulatedforpoliticalreasonssuchas ensuringthatcom- throughregulatory processare based on the perceivedlack of
paniesreceivean acceptablerateofreturnon assets.As a result, legitimacy ofunelectedregulators. However,as discussedabove,
regulators have had to returnto scrutinising the internalfunc- regulatorsalreadymake these decisions;theysimplydo so in
tioningofutilities, re-introducing regulatory discretion [Thomas non-transparent ways and withoutclear substantive guidance.
2005].Inanotherexample,theregulator has beenforcedtograp- Acknowledging thisdiscretionary and substantive roleofregula-
plewithsocialissuessuchas theinterests oflow-income groups. torsand providingthem guidancewould be a step forward.
Thus,thecountry's Utilities Actof2000 makesconsumerprotec- Moreover,with appropriateproceduralsafeguards,regulatory
tiontheprimary dutyoftheregulator[Owen2004]. Overtime, processescouldbe potentially morelegitimate thanparliamen-
theonsetofprivatisation intheuk has had theironicresultofthe taryones, in that theycould providegreaterscope forcon-
emergence ofan explicitbodyofpublicservicelaw wherenone sideration ofall interests and issues.15 Thisargument is strength-
existedbefore[Prosser2000]. ened in thecontextofmanydevelopingcountries, suchas India,
Similarlessonson theblurring of economicand social objec- whereparliamentary processesare notseen as highlylegitimate
tivesemergefroma closescrutiny ofIndianelectricity regulators oreffective.
[Dubashand Rao 2007].Whiletheregulatoris legallymandated In closingthissection,it is important notto givetheimpres-
to reducecross-subsidies (a higherpricepaid byone consuming sion of scholarlyconsensuson the issue of whetherand how
class to reducepricesforanother),in practice,regulators make regulators shouldbe guidedby substantive values,and thelink
politicaljudgments about whether and how much to do so. There between procedural values (good processes) and substantive
is also substantialevidencethatinsteadof followingthe man- values (good outcomes).Thereremainsconsiderable debateon
dated cost-plusformulaeto determinetariffs, theyuse various howto ensureregulatory consistency and legitimacy whilesteer-
creativemeans to keep tariffswithin politicallyacceptable ingclearofunrealistically rigidand rule-bound regulation. What
bounds.Despitethesetensions,nothinganalogousto the uk's is clear,however,is thatrobustprocedures are an important part
of a
emergence body public of service law has, as yet, occurred ofthe regulatory story,and that there needs tobe space for debate
inIndia. and discussionon substantivevalues forregulationthatgoes
Thisdiscussionsuggeststhattheimplicit assumption reg- beyondtheapplicationofeconomiclogicalone.
that
ulationinIndiacan and shouldbe a single-minded instrument of
economic is both misplaced and unworkable. 5.3 Substantive Values to Tangible Social Outcomes
applying logic
Seeking to exclude social objectivesonly drives the consideration The concernsthatmotivatea socialagendain regulation include
of these objectivesunderground. As Prosser (1999) puts it, "No issues of access to electricity and water; appropriate pricingfor
singlelogic can or should form a basis for their [regulators'] low-income groups; attention to quality of service issues, includ-
and
decision-making they should not be seen as of
capable imple- ingspecial provisions such as those that permit the use ofpre-
menting a mandate of simplyapplyinggovernment guidance." paid meters; and relatedsocial issues such as the of
rights labour
Instead, the aim should be development ofan explicit framework employed in the electricityand water sectors. Given thelimited
withinwhichsocialchoicesare madeintheregulatory process. experience with regulation in the developing world, thereis a

Economic& Politicalweekly DS3 October 4, 2008 51

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definitescarcityof literature examiningthe implementation of designedto legitimately cope withstakeholder, or indeedgov-

thesesocialissueswithina regulatory framework. The literature ernment, pressures. Publicparticipation procedures enshrined in
thatdoes existtendsto detailindividualcases ratherthandraw- regulatory statuteshave led to some transparency and discus-
inglargerlessons. sion,but neitherhave thesebeen followeddiligently, norhave
One experience, however, thatreinforcesthelargerpointbeing theybeen used to theirfullpotential,in partdue to theweak-
made hereabout substantive values is thatof SouthAfrica.In nesses of civil society.In pursuingtheirfunctions, electricity
SouthAfrica, the rightto basic servicessuch as electricity and regulatorshave largelyadoptedthe rhetoricof economiceffi-
wateris enshrinedin the constitution. This providesa ready ciencyas thedominantsubstantive value,evenwhiletheiractual
benchmarkforsubstantiveguidanceto the regulator.Hence, decisionshave reflected politicaland social compulsions, albeit
debateoverregulatory approachesand objectivesin thatcountry ina non-transparent Whileregulators
fashion.17 haveledtosome
tendtocentrally includediscussions overaccess [Camayand Gor- gains in both process and outcome,regulatoryperformance
don 2005]. Forexample,the cityofJohannesburg held a major acrossstatesis erraticand idiosyncratic, restingheavilyon par-
international conference on pro-poorregulationas part of its ticularindividuals. Takentogether, itis hardtoavoidtheconclu-
development ofa regulatory framework. The lessonthatemerges sion thatthe assumptionson whichelectricity regulators were
isthata largepartofthebattleinvolvestheappropriate framing of builtare largelyincompatible withthepoliticaland institutional
regulatory responsibilities;as in an enablingact or,as in South contextwithinwhichtheyoperate,requiring regulators tomake
Africa,byincluding itintheconstitution. Forinstance,thepoten- ongoingad hoc adjustments.
tialformulation ofwater-related regulatoryactsbyIndia'sstates Waterregulationis a farmorerecentinstitution. Once again
criesoutforintervention to includesocialobjectives. nudgedalongbydonorinfluences, theearlysignsare thatwater
The recenttrendtowardreplacingpubliccontrolwithprivati- regulationwill share in the fictionof an apoliticalspace for
sationand marketprincipleshas had the effectof orphaning decision-making. The roleofproceduralsafeguards andtheneed
socialpolicy.Thisexamplesuggeststhatthereis someprecedent foractivepublicparticipation as centralelementsin theregula-
forviewingregulators as a placewherethedetailsofsocialpolicy toryprocessonceagainseemtobe lost.The processis seemingly
can be workedout.Ifindeedthestate,in theformoftheexecu- drivenby thevisionof handingoverproblemsto an apolitical,
tive,is to playa less centralrole in deliveringelectricity and objective,and competent technocrat - thenaïvepublicinterest
waterservices,thenregulatorsremainperhapsthe onlyviable view.However,thesocial stakesin waterregulation, and there-
optionforpursuinga social agenda.Moreover, withappropriate forethelatentpoliticalpressures,are, ifanything, greaterthan
proceduralsafeguards and a substantivemandate, it is worth in electricityregulation.Withoutgreaterthoughtand a course
asking whether independentregulation, under some circum- correction, waterregulationis likelyto repeatmanyoftheweak-
stances,can evenbe an improvement overa centralisedbureauc- nessesofelectricity regulation.Giventhegreaterandmoredirect
racyas a spaceforsocialpolicy. social stakesin water,waterregulatorswill be called on even
moreoftento exercisejudgmenton politically sensitivematters,
6 Conclusions: Regulation and Social Policy in India based on an even thinnerbase of legitimacyand credibility.
Regulation inIndiaisstilla recentinstitution.Itis also an institu- Indeed,the basic questionwhetherindependent regulators are
tionthathas notfullygainedpublicconfidence(at least in the an appropriate formofgovernanceforwaterhas notbeenposed
sector)evenas thereis talkofexpandingregulation
electricity in and answered,butonlyassumed.
othersectors(notably water).In thisconcluding section, I wishto Thereare groundsforscepticism aboutregulatory institutions,
brieflyreturnto the of
specifics electricity and water regulation but at the same time, decades ofstate controlover electricity and
inIndiaandrelateittothelargerideason regulation discussedin waterserviceshavenotinspiredconfidence. In thismodel,social
thispaper. goalswereintendedtobe directly addressedbyministries. How-
The establishment of electricity regulatorsbroadly followed ever, there was little for
scope public debateand discussion over
the Levy-Spillertemplateoutlined above- regulationas a whatthesocialgoalsshouldbe andhowtheyshouldbe addressed.
meansoflimiting arbitrary decisions,so as to attractinvestors.16So, the optionof publicownershipand controlalso offerslittle
Atthe same time,followingestablishment, the officialrhetoric guaranteeofsuccess.The choiceis betweenimperfect options.
has beenonethatconforms to thenaivepublicinterest viewthat One way is forpolicymakers, academicsand activiststo con-
regulatorscan,ina straightforward manner,ensurethecommon siderwhetherthereis an alteredvisionofregulatory bodiesthat
In
good. practice,however,regulators have had to apply discre- provides a workable route to more democratic and effective
tionandjudgmentat everyturn,on someoccasionmakingdeci- governanceofwaterand electricity. Whatmightsuchan altered
sionson thebasisofefficiency enhancement, on others,bowing visionlooklike?
topoliticaldictatesand pressuresto accountforsocialoutcomes. Regulatorydesignmightbe usefullybased on threesets of
The originalhope thatelectricity regulators would function as ideas,as theabovediscussionmakesclear.First,regulatory bod-
somesortofislandinsulatedfrompoliticsappearsto havebeen ies shouldbe explicitly based on an institutionalist perspective
flawedinitsconception. thatallows forregulationto be an effective instrument ofpro-
viewprovidesa morerealisticrepresenta- motingthe publicgood (unlikecapturetheories),butdoes not
The institutionalist
tion of how regulationworksin practice,but, in India, little presumethatitalwayswill(likepublicinterest theories). Instead,
thoughthas been givento how regulatory mechanismscan be regulatorshave to be carefullydesigned,withattention to the

52 October 4, 2008 B2Q Economic weekly

& Political

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 - - -= - SPECIALARTICLE

politicaland institutional contextwithinwhichtheyoperate.In executivelevels,whichmakesconsideration of social goals an

India,thiscontextincludesthe realityof publicownershipof explicitpartofregulatory objectives.Atthemoment, regulators
mostelectricity and waterproviders; theexistenceofa fewlarge operateas ifthereis one economicallycorrectanswerto every
and dominantprivatefirmsin some segmentsofthe electricity question,but make back-dooradjustmentsto accommodate
sector;a limitedpool of bothskilledcommissioners and staff; social and politicalpressures.A clear substantiveframework
limitedpublicfamiliarity with regulatoryprocesses;and the wouldforceexplicitand transparent consideration oftrade-offs
nascent,thoughpotentially potent, stateof civilsociety. While and alternatives.
thespecifics ofregulatory designdefyeasyprescriptions, recog- Thisdiscussionis particularly salientto thewatersector.Sub-
nising the nature and parameters of the institutional design stantive guidance to the regulatorthatdefinesthescopeofdeci-
problem are an first
important step. sions that can be taken by the regulator, and providesa set of
Second, the of
concept regulatorygovernance needs to be parameters within which regulatory discretion can be applied,is
expanded, with the emphasisshifting from signallingcredibility essential ifregulators are to take on social concerns. Sinceregu-
to investorsto largerconcernsofdemocratic legitimacy with the latory acts are yetto be written in most states,there is a moment
public.Indeed, the two are since
related, without legitimacy with of to the
opportunity shape framing ofwater regulators. Also,the
thepublic,assurancestoinvestors may be overturned at any time of
experience electricity regulatorssuggests that the firstfew
underpopulistpressure. In a complete reversal of the conven- of
years operation is critical in setting down the institutional
tionalwisdom,therouteto legitimacy and effectiveness ofelec- normsthat shape how the regulatoractuallyfunctions. It is
tricity
regulation liesinreorienting theinstitution tobe an active important that sound for
procedures participation be enshrined
siteofpoliticaldebate,ratherthanan islandina sea ofpolitics.At at thisearlystage.
thesametime,thedelegationofimportant decisionson electri- In conclusion,this paper has highlighted that independent
cityand waterto regulatory agenciescan onlybe considered regulatory agencies are a complex institutional form.Questions
legitimateif the politicalplayingfieldis level. This requires ofregulatory the
legitimacy, extent to which theycan providea
robustprocedures oftransparency and participation, theiractive democratic space,thedegreeto whichtheycan and shouldhave
implementation inletterand spirit,reasonedevidencetoindicate discretion,are all questionsthat should be activelydebated
thatpublicparticipation actuallyeffectsregulatorydecisions, and contested.Whetherregulatoryinstitutions hold greater
and expliciteffortsto build publiccapacityto participatein prospectsforgain or harmneedsto be discussedon a sectorby
regulatory processes.In otherwords,credibleregulationwould sectorbasis.If,onbalance,regulatory institutions holdoutprom-
havetotrulyprovidea democratic spacefordecision-making. ise,thereis theneedto framean agendaoftheirsubstantive pur-
Third,regulationwould have to be guidedby a largersub- pose, which includessocial policy,and reorientthemtowards
stantiveframework debatedand definedat the legislativeand democratic governance.

notes
i Thereis, however,a reasonableamountofwork
on techniquesand methodsthroughwhichnew
IRAsexercisetheirpowers,suchas on alternative
regulatoryapproachesto tasks such as price
setting,andcontrolling entryand exit.Thiswork,
whichis notthe focusof thispaper,is comple-
butby no meansa substituteforatten-
mentary
tiontothepoliticaleconomyofregulation.
2 Notably, as correctlypointedoutbyM H Zerah,an
authorandreviewer, thisreviewislargelyrestricted
to theAnglo-Saxon traditionthatfocuseson dis-
tinctregulatory agencies,as opposedtoa quitedif-
ferentmainlandEuropeantradition thatexamines
the function of regulationwithoutassumingthe
need fora separateregulatory commission. This
paperis restricted to theAnglo-Saxon of
tradition
10 More recentworkseeks to updatethe Levyand
independent regulatoryagenciesbecauseitsintro-
ductionin Indiais a faitaccompli.However, exam-
iningotherinstitutional traditionswould yield
11 I havetriedtoreconstruct thisprocesselsewhere,
importantinsightson alternativeinstitutional
forms forregulatory tasks.
3 In additionto stateregulators, thereis a central
regulator thatis responsibleforissues thatcross
stateborders,
4 Forcomment
suchas electricitytransmission.
reform
and discussionon electricity
in India and worldwide,see Dubash and Singh
(2005). Fora briefreviewofthehistory ofIndia's
electricity sector,particularlyduringthe 1990s,
see Dubashand Rajan(2000).
5 I am gratefulto E A S Sarma forstressingthese
pointsinhisreviewofthisarticle.Forfurther per-
spectivesalongtheselines,see Sarma(2004).
6 See, forexample,Rao 2004, PrayasEnergyGroup
2003, Godbole2000, Mahalingam2005, Dubash
and Rao 2007.
7 The onlyattemptto do so is containedin a Plan- 12 Forone, partialeffortto spell out a governance-
ningCommissiondiscussionpaper 'Approachto based analysisofregulation,see Minogue2001.
Issuesand Options'
RegulationofInfrastructure: 13 Oftenassociatedwiththisis theviewthatsocial
released in 2006 and available at http://plan-
objectivesare best served throughminimalist
ningcommission.nic.in. regulation,throughallowing marketforcesto
8 A naturalmonopolyoccurswhenit is less costly drivedown pricesto everyone'sbenefit[Smith
forone ratherthanmanyfirms toproducea com- 2000].
modityforreasonsof economiesof scale. Under 14 In contrast,the UtilitiesAct of Britainclearly
such conditions,forcingmanyproducerswould statestheprimary interest ofregulators is topro-
losses,so it is betterto simply
lead to efficiency tecttheinterestofconsumers, withtheriderthat
allow a single firm,but regulatethe price it whereverappropriatethisis to be done by pro-
charges. motingcompetition [Owen2004].
theevidenceamassedtosupportthecap-
9 Notably, 15 Wood (2005) argues forcefully that"confusing
ture theoryrestsheavilyon studiesof IRAs as
democratic governancewithvotingshouldsimply
opposed to otherformsof regulation(e g, envi- be unacceptable".She suggeststhatlimiting dis-
ronmentalor health regulationfromwithina cussions of democracyto votingalone exclude
government department). sensibleand fullconsideration ofgovernancein
decision-making processessuchas regulation.
Spillerapproachand applyittoAsia (Cubbinand 16 However,it mustbe notedthatLevyand Spiller
Stern2005; Sternand Cubbin2005). are muchmorenuancedinlimiting theconditions
underwhichregulatorscan workthanwerethe
inDubashand Rajan (2000). designersofregulation in India.
Economic&PoliticalwEEKLY
andPolitical
UnboundBackVolumesofEconomic Weekly 1976to2007areavailable.
from
Writeto:
Circulation
Department,
Economicand PoliticalWeekly
AtoZIndustrial
320-321, Estate, Kadam
Ganpatrao Lower
Marg, 400013.
Parel,Mumbai
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WaterRegulation', IndiaTogether, May23, Availa- PlanningCommission,GovernmentofIndia(Nodate): Warghade,Sachin (2007): 'WaterRegulatory Author-
ble at http://www.indiat0gether.org/2007/may/'Approachto Regulationof Infrastructure: Issues ity:Need forCivilSocietyAction', Presentation at
env-mwrra.htm (viewedon Nov2, 2007). and Options',releasedin 2006 and available at WaterAid, April24, 2007.
Dubash,NavrozK, and SudhirChella Rajan (2000): http://planningcommission.nic.in. Wood, Davida (2005): Taking Power: Social and
'PowerPolitics:Processof India's Power Sector PrayasEnergyGroup(2003): A Good Beginningbut PoliticalDynamicsof the EnergySector',Paper
Reform',Economic & Political WeeklyXXXVI (35): ChallengesGalore,February, Availableat www. read at InternationalConferenceon "New
PP 3367-90. prayaspune.org. Frontiersof Social Policy: Developmentin a
Dubash,NavrozK and DaljitSingh(2005): 'Of Rocks Prosser,Tony(1999): TheorisingUtilityRegulation', GlobalisingWorld",December12-15,at Arusha,
and Hard Places: A CriticalReview of Recent TheModernLawReview62 (2 March),pp 196-217. Tanzania.
GlobalExperience withElectricity Restructuring', - (2000): 'Public Service Law: Privatisation's World Bank (1996): StaffAppraisalReport:Orissa
Economic & PoliticalWeekly, December10. UnexpectedOffspring1, Law and Contemporary PowerSectorRestructuring Project,WorldBank,
Dubash,NavrozK and D NarasimhaRao (2007): The Problems 63 (Autumn), pp 63-82. Washington DC, p 7.
Practiceand Politicsof Regulation:Regulatory
Governance inIndianElectricity, Macmillan,New
Delhi. CALLFORPAPERS
Godbole, Madhav (2000): 'ElectricityRegulatory LINCOLN WITHOUT BORDERS CONFERENCE
Commissions: Empowerment ofConsumers', Eco-
nomic& PoliticalWeekly, 22 January. Indian Institute ofTechnology Madras
HancherandM Moran(1989):'OrganisingRegulatory
Space' in L Hancher and M J Moran (eds), Cap- December 19-20, 2009
italism, Culture andEconomic Regulation,Claren- of AbrahamLincoln'sbirth,"AbrahamLincolnwithoutBorders"willbe the
donPress,Oxford. Duringthe bicentennial
and Alexandre subject ofan international muitidisciplinary conferenceslated forDecember19-20,2009, to be held
Hira, Anil, David Huxtable, Léger
and
(2005): 'Deregulation Participation: An Inter- at IIT Madras in Chennai, India. Primary consideration willbe givento proposalson Lincoln'slegacy
national Surveyof Participationin Electricity fromthe 19thto the 21st centuries.
Regulation', Governance: AnInternational journal
of Policy,Administration and Institutions18, 1 Submissionsare preferred on institutional letterhead, shouldbe no longerthana singlepage, and
January: pp 53-88. consistof a 5-10 line proposalfollowedby a 3-5 Jinebiographicalsketchof the authorwritten in
House ofLords(2004): The Regulatory State:Ensur- thethird The deadline is 1, 2009. Earlysubmissions are encouraged. Selected
person. Proposal April
ing its Accountability',ed, Select Committeeon
theConstitution, 6thReportof Session2003-04, papers willbe published.
6 May,HL Paper68-1,Government oftheUnited to Prof.Sura Rath (raths@cwu.edu) withcopies to
Please send proposalsas e-mailattachments
Kingdom. and Dr.Jyotirmaya
and XavierFernan- Prof. William D. Pederson (william.pederson@lsus.edu) Tripathy(jyotirmaya®
Jordana,Jacint,David Levi-Faur,
dez i Marin(2006): The GlobalDiffusion ofReg- iitm.ac.in).In addition,a hard copy should be mailed to Prof.Pederson at International Lincoln
ulatoryAgencies:Institutional Emulationand the Center,LSU in Shreveport,One University Place, 321 BH, Shreveport,LA 71115-2301, USA.
Restructuring ofModernBureaucracy'. Presented Proposals mayalso be faxedto (+1)318-795-4203.
at a conference organisedby the EuropeanCon-
sortiumforPoliticalResearch and the Centre for Some Possible Topics:
theStudyofRegulatedIndustries on 'Frontiers of
legacyinIndia Lincoln's
Lincoln's impact on Gandhi Lincoln Law
andInternational
Regulation:Assessing Scholarly Debates and
Lincolnas writer Lincolnas a modelforDemocratic Development Lincoln'slegacyinIndian Schools
PolicyChallenges',September at
7-9, Bath, UK.
Lincoln's
impact on Nehru Lincoln as a modelforRéconciliation Lincoln andHumanRights
Levy,Brian,and PabloT Spiller(1994): The Institu-
tionalFoundations ofRegulatory Commitment: A For details visit: www.hss.iitm.ac.inTlincolnconf/index.html
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54 October 4, 2008 12259 Economic weekly

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