Alternatives to Regulation Presented by Dr Abha Yadav

Alternatives to Regulation Presented by : Dr. Abha Yadav Director - Forum of Indian Regulators (FOIR) Centre Assistant Professor ( School of Competition Law & Market Regulation ) Indian Institute of Corporate affairs (IICA) Think tank for the Ministry of Corp. Orate Affairs

What do we mean by Alternatives to Regulation? An alternative to a regulation is a strategy, policy or process of inducing other ways of regulation other than the stringent rule of law for incorporating regulatory procedures in the economic market. These Alternatives can be, market based instruments, self-regulation & coregulation policies or through spreading information & education schemes among the consumers & policy makers in order to introduce more awareness on the regulations, so the acceptance of such regulatory process is easier for the consumers.

The alternatives to regulation should be incorporated along with other traditional regulatory framework, as they provide greater flexibility and can be applied as per the market conditions of the state and as per the relevant industry For successful application of the alternative regulation, one must assess the market scenario first to analyse as to what may work & what may not. These alternatives help the industry to break the common norms & process of traditional regulation & provides flexible approach to regulation. Processes like Regulatory Impact Assessment can be carried out in order to identify the advantages & disadvantages of the alternatives in the relevant industry or market. Rather than following the general create & regulate approach The alternatives to regulation are to be incorporated during the policy making process itself and follows the “regulate first” approach.

Advantages of Alternatives to Regulation ❖ ❖ ❖ ❖ It is more Flexible than the traditional approach of Regulation. Generally Easy to incorporate as current regulation can be improved with the changes in policies. Alternative regulation guides the policy makers in drafting efficient policies. It helps in effective decision making by the regulators & policy makers. It minimises the regulation costs. It can be altered as per the Industry needs & requirements The tradition form of regulation may not be successful with the everchanging needs of the economy but alternatives to regulation can help modify policies as per the changing needs of the markets.

Barriers to Alternative Regulation ● ● ● ● Alternative regulation is considered risky as the application may not always achieve the defined objectives. May not be easily acceptable by the consumers policy makers reluctant to use these alternatives because of the unpredictability & perception of risks involved with it, which further brings out fear in the consumers as well. avoidance of the regulation by the consumers affects its applicability. fear of loss of control by the government. Lack of knowledge can cause adverse failure of the alternative regulation. Resistance to change among policy makers & regulators

● ● ● lack of knowledge/awareness in policy makers on use of alternative regulation. Public opinion may influence the decisions of the Regulators & Policy makers. The results of the alternative regulators may not be seen in the short term. Awareness on results outcome through the traditional regulation provides comfort to the regulators hence restricting themselves to choose other modes of regulation. It raises concerns for the businesses as to the impact of such regulation on the competitors & their reactions to it, which makes them reluctant to show acceptability to alternative regulations.

Overcoming Barriers to Alternative Regulation ❏ ❏ Positive & Encouraging policy making to be adopted. Promoting regulatory policy makers in early stages of policy formation, in order to weigh the positives & negatives of alternative regulations to further incorporate them in the regulatory process. The efficiency & effectiveness of policy making to be considered as compared to policy making after influx of alternative regulation. Use of RIA ( Regulatory Impact Assessment) to be incorporated in the policy making process. This would promote transparency & better decision making in the regulatory framework.

❏ ❏ RIA process helps identify various issues & the alternatives available to implement for an efficient regulatory framework. The awareness amongst the policy makers & regulators on RIA will help increase knowledge & information about the analysis of various alternatives, its costing, advantages, disadvantages & analysis of method of effective decision making, further educating & increasing the capability of the policy makers in applying alternative regulation. Conduct of educative programs for the policy makers & regulators on alternative regulation for increased awareness among the consumers on the introduction of alternative regulation to be efficiently conducted in order to reduce the fear & perceptions of risks involved with it.

What are the Alternatives to Regulation Market-based instruments Self Regulation & Co- Regulation approaches Information and Education schemes

Market-based Regulatory instruments Market based instruments are used in the form of trading schemes & market incentives for the consumers & Businesses. These may include setting benchmarks for production or consumption and are generally used in combination with other policies. These regulatory instruments are generally introduced with a fixed objective such as control on emissions, pollution control & disposal of waste by industries or subsidies on environment friendly products. The market based instruments need to be monitored as evasion may take place. They are generally beneficial for the consumers & businesses so are mostly followed by them.

The Market based instruments affects the behaviour of the consumers directly & it may have long terms impact, its effects may not be seen in the short term. The acceptance by the consumers & compliance is a must for its effectiveness on the markets. These instruments have higher transparency in the markets. The market based regulatory instruments can be divided into two segments: ● ● Incentives & Trading Schemes - These include Change in relative prices & other Trading schemes such as carbon emission scheme. Fiscal measures - These measures include charging taxes on harmful products to make it expensive eg. tobacco prices have been increasing in order to decrease its usage by the consumers and subsidies are provided on production & consumption of desirable goods eg. Fertilisers

Self Regulation & Co- Regulation The enforcement of rules, regulations & policies by specific individual groups or bodies is self regulation and when the government involvement is present for the incorporation of such regulation by introducing such regulations as laws then it is referred to as co-regulation. The objectives & incentives offered under the self or co-regulation framework should be in consistent to each other in order to achieve the desirable results. In other words, the requirements of the consumers should be provided by the self or co-regulatory framework. An example could be industry standards that are set up by a specific industry for internal control is self-regulation but when these standards are legally incorporated in law then it is co-regulation.

They provide greater flexibility, less costing & easy adaptability for the consumers & affected sector. This mode of regulation is considered highly effective compared to other instruments & possesses transparency. The self-regulation & co-regulation instruments should aim at minimising the costs & maximising the benefits for the consumers. The regulations should be created in order to be beneficial for the target group of consumers. They can be tailor-made as per the industry requirements and the effectiveness required for a particular sector. The dispute resolution process should also be created in case of concerns raised from those affected from the relevant sector.

Information and education schemes These measures include making information available to businesses & customers through relevant education campaigns. Through spreading awareness among the consumers & businesses, they can be made more susceptible to the regulatory framework. These alternative regulatory measures help the consumers in acceptance of all forms of regulations including the traditional form of regulation. There are no strict requirements for the information & education schemes but are equally important for spreading crucial information on regulations among the target group. The objectives are pre-defined while carrying out the education schemes & information awareness.

Fairness & equality is to be kept in mind while dissemination of information among the relevant groups. The lack in spreading awareness among the relevant groups can cause issues among the consumers on the information not being provided. There is generally no direct government intervention but there are costs charged for non- compliance by the producer for dissemination of such information. An example of the same is spreading information through labelling requirements eg. product labelling

Assessing alternatives to Regulation The Alternatives to Regulation are to be analysed and applied appropriately for relevant industry/ sector on the below parameters: ➢ ➢ Effectiveness -In order to effectively introduce the alternative regulation, the objectives should be identified and should be in consistent with the other regulations persistent in the relevant sector. In order to have an effective alternative regulation, dispute resolution mechanisms should also be infused along with the regulations. Feedback & Monitoring - The alternative regulatory framework will only be successful if it’s compliance takes place. It is essential that the regulations are being complied with and appropriate mechanisms for feedback & monitoring are in place.

➢ ➢ Efficiency - The efficiency of the alternative regulation can be assessed by the maximisation of benefits & the minimisation of costs by its applicability. It is to be measured by its flexibility & the reduction in compliance costs in the relevant sector. Equity & fairness considerations- While applying the use of alternative regulation, it is to be ensured that it is fair to all the relevant groups in the industry or sector it is applied at. If not applied fairly, there can be nonacceptance by the consumers & businesses and can be a failure for the alternative regulatory framework. Further, with the introduction of the alternative regulatory framework, the transparency is to be maintained & appropriate complaints resolution mechanism is to be created.

Thank you !!