A deregulatory moment; Regulatory theory for regulatory reform
A deregulatory moment
The climate of opinion has shifted in favour of downsizing government and deregulation. This policy vision is finding its way down the policy pipeline, from academic scribblers to practical men. In the Budget speech, the Union finance minister announced a high-level committee to examine deregulation in the non-financial sector, and a work program at the Financial Stability and Development Council to do similarly for the financial sector. The new RBI governor, Sanjay Malhotra, threw new light when he said “just like there are no free lunches, regulation to enhance stability and consumer protection too is not devoid of costs. There are tradeoffs between stability and efficiency”. In the United Kingdom there is optimism about a new `regulatory innovation office'. In the United States there is a new `department of government efficiency'.
In the main, I’m happy about these efforts. For India, less government control of the people is mostly a good thing. At the same time, there are concerns about quick and dirty projects.
On 16 August 2024, a bit ahead of Elon Musk’s adventures, Amit Varma and I produced Ep61 of Everything is Everything, on how A country is not a company.
On the new moves in India, on 17 February I wrote How to make episodic deregulation work and on 20 February, K. P. Krishnan wrote in the Business Standard.
To add value in the field of public policy, we need to be philosophers and develop a theory of change. Lant Pritchett jokes that for most economists, the theory of change is that someone (preferably me) gets the monopoly of whispering into the ears of a credulous dictator. The world is more complex. There is a pipeline in the policy process. Three page notes, also termed jaldbaazi in Hindustani, should be viewed with mistrust. The levers of change lie upstream of the incentives of the people running the place. Practical people know that theory matters.
Regulatory theory for regulatory reform
A whole bunch of people have been chipping away in building the field of regulation in India. For overviews of the field, see talks by K. P. Krishnan and by me.
My co-authors and I have a new paper on electricity regulation in Tamil Nadu: Improving electricity regulation in Tamil Nadu, Akshay Jaitly, Charmi Mehta, Rishika Ranga, Renuka Sane, Ajay Shah, Karthik Suresh, XKDR Forum Working Paper 37, February 2025. The stance of the paper is not one where the authors whisper into the ears of receptive regulatory staff on how to do their work better. It’s about acquiring deep domain knowledge in the field, understanding the failings of the working of the present regulatory mechanism, harnessing the twenty years of knowledge in the field of regulatory theory, and proposing a set of feasible root cause improvements.
Natasha Aggarwal has an article on The Leap Blog on 14 February, unveiling a nice new dataset: Mapping insider trading laws: A database for SEBI’s Prevention of Insider Trading Regulations. This contributes to stage 1 of the policy pipeline.
Natasha Aggarwal, Bhavin Patel and Karan Singh have a new paper A guide to writing regulatory orders [PDF][Unveiling blog article]. This contributes to stage 2 of the policy pipeline.
We need to look beyond the immediate and start thinking about the post-reform world- specifically, how do we prevent a rollback of the reforms that is to come.
The only credible thought process I have is, we need to do a clear-hold-build strategy in the world of ideas, for each government ministry that is touched by the reforms. To put plainly,every reform committee must plan for a continuous expense line, and institutional setup that will allow each ministry to house its own in-house policy research groups. A reform in hiring is also required to ensure lateral entry and exit from this pool.
The idea is reform drivers full of ideas will create change and mentor new blood. The new blood, located in-house will remain back holding the fort against bad ideas that will come, sometimes as early as in a decade.
Cultural aspects of how to groom fresh 20 year old economic grads into intellectual powerhouses over a 30 year period, may also have to be cultivated.