The Economic Survey 2024-25 has recommended setting up an independent body within the financial regulators to look into their regulations from all angles. The survey has also recommended the body to report its finding to the concerned regulator's board rather than its management.
It has been suggested that the agency would analyse the social and cost related aspects of the regulations before they are implemented.
"Such a move will signal that regulators are willing to live by the principles they expect regulatory entities to follow," the survey document read.
Currently, financial regulators in India, such as Reserve Bank of India, Securities and Exchange Board of India, and Insolvency and Bankruptcy Board of India, are largely responsible for regulating themselves. Their performance is assessed through multiple mechanisms, but these evaluations do not focus on the quality or impact of regulations.
In terms of the financial regulators, currently there exists parliamentary scrutiny through the "Committee on Subordinate Legislation" and the "Standing Committee on Finance". Both the committees are supposed to examine if these regulators are functioning within the ambit of their powers.
Apart from this, the Comptroller and Auditor General (CAG) also has the powers to audit financial regulators, but its scope is limited to financial compliance, not regulatory quality.
Meanwhile, judicial review by courts can look into regulations, but that happens only after they have been implemented and challenged, making it an ex-post corrective measure rather than a proactive regulatory assessment tool.
As a result, there is no solid way to look into the regulations, as per the survey.
Due to these reasons, the survey has mentioned that a Regulatory Impact Assessment or RIA is an important instrument for regulation making. The document also mentions that this content is followed by OECD (Organization for Economic Co-operation and Development ) countries and hence is a globally accepted practice.
The survey further mentions that Indian regulators such as IBBI, already have elements of RIA, such as public consultations, cost-benefit analysis, and periodic reviews of regulations. However, it suggests making these practices mandatory and uniform across all financial regulators.
The CEA advises that this is particularly important for India, where financial literacy is low, and the economy is still developing. Over-regulation could hinder innovation, while excessive deregulation could increase financial instability and consumer risks.
By institutionalising RIA and setting up independent evaluation agencies, India can ensure that financial regulations are transparent, well-balanced, and aligned with its long-term economic growth objectives, the report mentioned.
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