Chief economic adviser V Anantha Nageswaran on Wednesday said regulators have to choose the trade-off very carefully so as not to stifle innovation with unelected regulatory power. He said the regulators in general should not be standing in the way of innovations, and cited the examples of
crypto currencies, which have come under the regulatory gaze of the Reserve Bank of India.
Talking about ‘Future of Regulation: Balancing Innovation and Risk’ at a CII event here, Nageswaran said there was a need for striking the right balance between optimizing growth and regulatory framework in light of global uncertainties.
“We have focused more on making sure that not a single act of deviant behaviour goes unpunished, and that is something that we need to reflect on. Where is the trade-off, especially in the current context, where I think growth is going to be at a premium, the world economy is not going to be very certain in terms of the outcomes,” he said.
“We have an extensive amount of financial literacy. So, in that situation, how do we distinguish between not standing in the way of moon shots, and in which sector do we have to be more conscious of social cost and benefits, whether it is crypto, bitcoins and online gaming, etc?”
“But to offset that, I would also say one thing, the same principle of transparency and social costs and benefits that we want to apply to regulated entities and some of the financial innovation should also apply to the regulators themselves.”
The regulators share information about why are they proposing a particular regulation, what is information at their disposal that want them to contemplate it, what are goals that they seek to achieve with the regulation, what is the terminal date and what are criteria by which they will stop this.
“There has to be accountability on the part of the regulator, and they have to be conscious of the fact that they represent unelected power and therefore that responsibility to yield power, consciously, is also something that we should demand of regulators.”
Nageswaran said there is a need to differentiate between the regulation of financial and non-financial sectors as competition in the financial sector can lead to excessive risk-taking and bring instability.
“We do need to make a distinction between regulation with respect to the financial sector and regulation with respect to the non-financial sector of the economy,” Nageswaran said.
He said in the non-financial sector, except in the case of natural utilities where one needs a regulator to protect customer interest, competition or market forces will take care of what the regulators do.
Virtually participating in the event, Insurance Regulatory and Development Authority of India (IRDAI) chairman Debasish Panda said regulations are designed to balance innovation and risk, ensuring the business ecosystem grows responsibly without compromising stability.