Administrative Theory of Regulation: The Indian Scenario

Publication Date01 September 2018
AuthorAmitabh Rajan
Date01 September 2018
Indian Journal of Public
64(3) 385–403
© 2018 IIPA
SAGE Publications
DOI: 10.1177/0019556118785425
Theory of Regulation:
The Indian Scenario
Amitabh Rajan1
The state, which regulates conduct in several ways, also regulates through the
process of agencification: it creates independent regulatory authorities to set the
market right, improve public service accountabilities, ensure proper alignment
of incentives, encourage institutional innovation, integrate adequate domain
knowledge and bring procedural fairness into the system. As a consequence,
there are institutions with a unique administrative identity that are structurally
situated at an arm’s length from the control of the state and therefore they are
autonomous functionally. It is not only a unique situation in institutional terms but
also a matter of establishing balance between autonomy and control in granting
justice to the stakeholders. This article examines the realities of the precept in
India and, then, reflects on the issues of reform. It keeps the comparative context
on regulation in view, particularly the situation since the 2008 Global Financial
Crisis and the lessons learnt by the holders of power in democracies.
Regulation, agencif‌ication, regulatory authorities, impact, reform
Concepts of Regulation
Regulation is needed because self-regulation has limits, and unregulated individual/
institutional actions have repeatedly created havoc in organised life. Scholars of
law, finance and statecraft agree on this. They differ, however, on the extent to
which state and its agencies need to intervene for growth and justice. Regulation
is an exercise in prudence (an integrated assessment of risk and growth in inter-
ventions for development), but prudence as a cardinal virtue of ethics is holding
power of intervention for the social good. Whether state or its agencies, the power
1 Former Home Secretary, Government of Maharashtra, India.
Corresponding author:
Amitabh Rajan, Former Home Secretary, Government of Maharashtra, India.
386 Indian Journal of Public Administration 64(3)
of regulation has to be used transparently, systematically, impartially and with a
mature vision of socio-historical accountabilities. Details show that this does not
invariably happen: Evidence of regulatory capture is not difficult to notice in
practice, and there are instances of motivated policy advice on regulation across
the world as well.
Legitimacy requirement today, therefore, is to keep regulation credibly decisive.
It is not an easy task, primarily due to three reasons—(a) asymmetries of
autonomy and control in governance, (b) procedural inadequacies in reaching
decisions and (c) ideological predilections on the role of regulatory interventions
in organised life. Time has come to accept the realisation that regulation is essen-
tially an instrument of justice and, therefore, shall achieve success only when it
is acknowledged as a unique administrative identity with its own characteristics.
Regulation today has a wide zone of sector-specific concerns, but amidst varia-
tions there is an overarching concern as well—a search for the structural determi-
nants of accountable regulation. We will take up an examination of the theories on
this first and then look at the prospects of regulatory reform in India.
We can begin our discussion on regulatory theories with the seminal work of
Michel Aglietta (1979) and the train of thought which developed among the French
political economists and others since then. Aglietta wrote an equally important
50-page update for the English edition of the book Capitalism at the Turn of the
Century: Regulation Theory and the Challenge of Social Change (1999).
1. Regime of Accumulation: Aglietta focuses on regimes of accumulation
that tolerate socially unfair and economically fragile production systems
to promote investors’ profit at any cost and do not feel constrained to
pamper profiteering in the system. However, he also notes systemic
compulsions of capitalism during its business cycle downturn that need
a pre-emptive regulatory mechanism to avert a full-blown legitimation
crisis. For Aglietta, thus, regulatory agencies are consciously crafted
mediations that act as safety valves of systems that see investment as a
postulate of growth and financialisation its key to governance.
2. Framework of Regulation: Aglietta argues on the strength of his robust
conceptualisation of financial history. His writings also have the capacity
to deconstruct strengths and threats of capitalism with objectivity and
present a coherent understanding of the impact of governance on rela-
tions of production. Initially, analysing the US experience with regula-
tion (Aglietta, 1979), he came up with a refined and updated critique of
theory and practice (Aglietta, 2000). He chose nation as the unit of studies
because he believes that economic relations cannot exist outside a social
fabric, and there is a requirement for regulatory frameworks to pass the test
of human well-being.
3. Modes of Mediation: Aglietta finds that the absence of market’s ability
for self-regulation brings about monetary instability, which in turn has
adverse economic consequences for the nations. The central issue for
Aglietta is to find a way of regulation able to reduce the degree of instability
through greater monetary coordination, founded on the principles of

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