Regulators should assess impact of their regulations says Eco Survey todayheadline

The Economic Survey suggested financial sector regulators should put in place a formal process to assess the impact of their regulations. The quality of regulations can be assessed based on five criteria: democratic legitimacy, accountability of the regulator, fair, accessible and open procedures, expertise and efficiency.Regulatory impact assessment (RIA) is an effective tool as part of the regulation-making process to ensure the quality of regulations. “RIA…has been promoted by the World Bank (2010). OECD laid down the guidelines for the use of RIAs in 2008. By 2016, 32 of the 35 OECD countries had included RIA in their regulatory frameworks. Globally, countries are increasingly adopting and revamping RIA procedures, including countries across all income levels,” the survey said.

The survey said that there is a vast evidence of the benefits of RIAs in terms of better quality of regulations and reduced compliance burden, thereby reducing the cost of compliance for businesses. RIA is also effective in improving the transparency and responsiveness of the regulatory bodies thereby improving credibility.

It suggested that one approach to RIA would be to set up an independent agency housed inside the regulator to evaluate the regulations from all angles. This agency will report to the board and not to the management, providing an impartial and objective assessment of the regulatory processes and outcomes, including the economic and social impacts of regulations.

“Given the country’s low financial literacy and lower-middle-income status, ensuring stability is essential to prevent systemic risks and protect consumers. However, this should not come at the expense of stifling creativity, innovation, or healthy market dynamics. At the same time, an excessive focus on innovation and competition without adequate safeguards can lead to financial instability, resource misallocation, and erosion of trust in the system,” the survey said.

Striking this balance is particularly critical for India, considering its vast and diverse economy, growing aspirations, and substantial investment needs to sustain high growth and development. “Regulators must consistently strive to achieve this equilibrium, and the suggestions if implemented, will help them pursue and maintain that balance effectively,” the survey said.