Regulators Can’t Judge Themselves — India Needs An Independent RIA

If India genuinely seeks regulatory robustness, it must step beyond internal oversight and create a fully independent, external RIA agency for financial sector regulators. An RIA embedded within a regulator is, at best, an internal audit function—ticking governance boxes but often lacking the ability to question or challenge uncomfortable realities. The semantics of internal reviews are well understood; reports tend to be diplomatic, carefully worded, and ultimately inoffensive. They rarely produce assessments that could be seen as transformatory.

A truly independent RIA would sidestep these limitations by providing an objective, external evaluation of proposed regulations, ensuring that they are not only economically sound but also practical, enforceable, and free from excessive compliance burdens. The logic is simple: a regulation, once implemented, affects not just the regulator but the entire financial ecosystem. Leaving the regulator as the sole judge of its own impact assessment is akin to asking an organisation to audit itself and publish only what it deems relevant.

Beyond governance, there are strategic reasons for an independent RIA. Financial sector regulation is becoming increasingly complex, interlinked, and prone to unintended consequences. The regulatory ecosystem involves multiple institutions—RBI, SEBI, IBBI, IRDAI, PFRDA—whose supervisory rigour and regulatory capacities are not homogenised. A fragmented, regulator-specific RIA function could result in inconsistencies and regulatory arbitrage, whereas a single, independent RIA agency could provide a harmonised, sector-wide perspective. Such a structure would ensure that India’s regulatory decisions are agile, responsive and data-driven.

This need is even more pronounced given the variations in regulatory standards, institutional capacity, and resources across India’s financial regulators. The Union Budget 2024-25 has acknowledged the need for evaluating the effectiveness of financial regulations by announcing a new review mechanism under the Financial Stability and Development Council. While the FSDC serves as the nodal agency for harmonisation, its impact in fostering seamless regulatory coordination has been limited, and passive. A regulatory ecosystem is only as strong as its most constrained component, and an RIA housed within individual regulators risks reinforcing these disparities rather than addressing them.

If India genuinely seeks regulatory robustness, it must step beyond internal oversight and create a fully independent, external RIA agency for financial sector regulators. An RIA embedded within a regulator is, at best, an internal audit function—ticking governance boxes but often lacking the ability to question or challenge uncomfortable realities. The semantics of internal reviews are well understood; reports tend to be diplomatic, carefully worded, and ultimately inoffensive. They rarely produce assessments that could be seen as transformatory.

A truly independent RIA would sidestep these limitations by providing an objective, external evaluation of proposed regulations, ensuring that they are not only economically sound but also practical, enforceable, and free from excessive compliance burdens. The logic is simple: a regulation, once implemented, affects not just the regulator but the entire financial ecosystem. Leaving the regulator as the sole judge of its own impact assessment is akin to asking an organisation to audit itself and publish only what it deems relevant.

Beyond governance, there are strategic reasons for an independent RIA. Financial sector regulation is becoming increasingly complex, interlinked, and prone to unintended consequences. The regulatory ecosystem involves multiple institutions—RBI, SEBI, IBBI, IRDAI, PFRDA—whose supervisory rigour and regulatory capacities are not homogenised. A fragmented, regulator-specific RIA function could result in inconsistencies and regulatory arbitrage, whereas a single, independent RIA agency could provide a harmonised, sector-wide perspective. Such a structure would ensure that India’s regulatory decisions are agile, responsive and data-driven.

This need is even more pronounced given the variations in regulatory standards, institutional capacity, and resources across India’s financial regulators. The Union Budget 2024-25 has acknowledged the need for evaluating the effectiveness of financial regulations by announcing a new review mechanism under the Financial Stability and Development Council. While the FSDC serves as the nodal agency for harmonisation, its impact in fostering seamless regulatory coordination has been limited, and passive. A regulatory ecosystem is only as strong as its most constrained component, and an RIA housed within individual regulators risks reinforcing these disparities rather than addressing them.

An independent RIA is, therefore, a bulwark against institutional inefficiencies and regulatory capture. If designed correctly, it could prevent RIA from becoming yet another sinecure for establishment loyalists or a mechanism for returning favours. India has long grappled with self-referential regulatory structures, where oversight is diluted through lack of external scrutiny. A truly autonomous RIA, independent of regulatory fiefdoms, is the only way to ensure that financial rule-making serves the broader economy rather than institutional convenience.

A crucial aspect that deserves further emphasis is the global credibility and investor confidence that an independent RIA would bring to India’s financial markets. As India seeks greater integration into global capital flows, regulatory clarity and predictability are paramount. Foreign investors, rating agencies, and multilateral institutions closely scrutinise the consistency and impartiality of regulatory frameworks. An independent RIA would reinforce India’s commitment to transparent policymaking, ensuring that regulations are neither excessively burdensome nor arbitrarily changed.

Moreover, an external RIA would create a structured feedback loop between regulators, industry stakeholders, and policymakers. Despite occasional outreach and friendly gestures from some regulators, it cannot be said that the feedback loop among stakeholders is process-driven or neutral, as it often lacks the structured, impartial approach needed for meaningful progress. Currently, the impact of new regulations is often assessed after implementation, sometimes requiring reactive corrections that create policy uncertainty. A pre-emptive, independent review mechanism would allow for course corrections before regulatory missteps occur, reducing compliance shocks and fostering a more stable business environment.

Lastly, the operational framework of the independent RIA must be designed to ensure true autonomy. It must not become another bureaucratic layer susceptible to influence or regulatory capture. Appointments to this body should follow a transparent, merit-based selection process, with tenure security to prevent undue pressures. The RIA’s assessments should be made public by default, ensuring that its findings contribute to an informed public discourse rather than being confined to closed-door regulatory deliberations. It would eliminate the conflict of interest inherent in self-assessment and bring greater accountability to financial rule-making.

The Economic Survey has initiated an important conversation about institutional transparency and regulatory integrity. It is now up to policymakers to ensure that RIA is developed into a genuinely independent force for regulatory excellence.

Dr. Srinath Sridharan is a policy researcher and corporate advisor.

Disclaimer: The views expressed here are those of the author, and do not necessarily represent the views of NDTV Profit or its editorial team.