The Importance of Statutory
Regulation
S. Chatterjee is currently a professor
in Operations Management at
Management Development Institute,
Gurgaon, India. His teaching career
spans 16 years, following 20 years of
experience in industry. Prof. Chatterjee,
with his dual background in academia
and industry, lectures extensively on
subjects such as Operations Strategy,
Supply Chain Management, and
Project Management. He teaches
courses on Operations Strategy and
Mathematical Science Modeling.
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S. Chatterjee
Management Development Institute, Gurgaon, India
Abstract: Regulatory mechanisms enforced by govern-
ments are among the initial steps to minimum govern-
ment and maximum government, as propagated by
democratic governments worldwide. The form and types
of regulatory structures vary from country to country
without, however, diminishing the importance of regu-
lation. Privatization, signaling the withdrawal of govern-
ment from the operational aspects of various sectors,
accomplished without proper regulation has led to chaos
in several instances. Hence, the timeliness of regulatory
measures, the extent of regulation, and the powers of a
regulator are all important dimensions of the regulatory
mechanisms in that they not only help with governance
but also set a level playing field for the operators. This
is the basic theme that this article attempts to discuss.
Keywords: democracy; governance; government;
regulation; sector; separation; structure
Why Regulate?
The Socratic disdain for democracy is well known.
­Regardless of this, that major decisions in the ancient
Grecian region of Sparta were democratically taken by
the Assembly (the people, at large) is well documented.
A somewhat skewed definition of a democracy as an ac-
ceptable form of anarchy may also be apt. In spite of all
its pitfalls and deficiencies, a democratic form of gov-
ernance remains the dream and desire of most. The
principal reason for this is that, despite its drawbacks,
a democracy hails individual liberty. A democracy as-
sures individual freedom of speech, actions, opinions,
and views. However, democratic systems without checks
and balances could, with time, slide into chaos, with the
phoenix of autocracy or an oligarchy rising from the con-
sequent turmoil. An easy comparison to this can be
drawn with the modern form of school education, where
schools proclaim to give a child unbridled freedom for
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 The Importance of Statutory Regulation
the overall development of his personality.
While proclaiming to do so, on paper, the
schools realize that in practice, unqualified
freedom with total lack of restraints and
compulsions could arouse bullying, rowdy
behavior, and raucousness among pupils.
They, therefore, take adequate and subtle
care to bring in a certain set of rules that,
in the end, induce discipline in the system
and protect the scholastic culture for which
the school was created. Likewise, for the
nourishment and sustenance of democratic
governance at a national level, checks and
balances are essential.
The Attributes of a Regulator
Who then are the agents, in a democ-
racy, that would administer the necessary
checks and balances? Here is where we
come to the role of regulators. An indepen-
dent regulator in a democratic system is
the eyes and ears of the governance sys-
tem. They are the agents who, while en-
couraging freedom of action, also prescribe
the necessary restraints. These agencies
mostly draw their powers from a piece of
legislation that empowers them with the
power to warn, audit, enforce, and punish.
If a regulator is to exercise such power over
the regulated, then there are certain attri-
butes that the regulator must be equipped
with, in order to establish its credibility in
the eyes of the regulated. Also, the regula-
tor itself must be restrained from exceeding
its limits. What then could be the essential
attributes of a regulatory body?
1. A regulator should, in the course of time,
attain the stature of an honorable insti-
tution in the public eye. Institutions are
essentially as good as the people that
man them. Hence the people who serve
these institutions should not only be de-
monstrably erudite on matters pertaining
to the sector that is being regulated, but
their track record of righteousness and
prudence must be unblemished. Hence
right credentials rather than right con-
nections should be the only consideration
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for the appointment of key functionaries
of a regulating body.
2. A regulator, as per the legislation that
forms and empowers it, should be care-
fully guarded against any interference,
political or bureaucratic in nature. Their
functioning should earn them the distinc-
tion of an independent regulator.
3. Enforcement measures, redressal of
grievances, complaint handling, and in-
terpretation of rules which would be a
major part of the functioning, should be
done within a declared time frame that
does not reek of lethargy and decay in
its functioning.
4. All queries and replies thereto, interpreta-
tion of rules, and enforcement measures
taken should ideally be in the public
­domain where concerned entities can
refer to these facts and figures.
5. The regulator’s actions should be subject
to judicial scrutiny.
Regulatory Experiences All Over
In order to promote the above common
features in regulatory bodies across the
spectrum, there needs to exist an over-
arching statute that makes the compulsory
features of a regulatory body explicit to all
concerned. Here we have a notable exam-
ple of the American Administrative Proce-
dures Act (APA) of 1946. This Act governs
the manner in which regulatory bodies are
to be established in the United States. The
Act also details the process of rulemak-
ing, the powers of the regulator, and the
involvement of the citizens at large. To in-
volve citizens, the Act calls for a public no-
tice of proposed rulemaking (NPRM) to be
published in a Federal Register in public
domain. The pursuit of transparency does
not stop here. In cases where the regula-
tor itself is unaware of all ramifications of
the proposed rulemaking, the NPRM may
be preceded by a notice of inquiry that so-
licits public views and suggestions on the
issues on which the rules are to be framed.
This deepens the regulator’s understanding
of the issues.
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 The Importance of Statutory Regulation
If as a result of the NPRM, the views and
suggestions that pour in result in substan-
tial modifications of the proposed rules, a
further notice of proposed rulemaking (FN-
PRM) may be resorted to, before the rules
are crystallized.
An Act like the APA of the United States,
that took 10 years of work initially, before
being introduced in its present form, main-
tains a uniformity of structure and func-
tioning across regulators that is lacking in
many countries.
We can cite another example of a differ-
ent regulatory structure, which achieves a
similar aim of creating a uniform regula-
tory environment, in the case of Sri Lanka.
Sri Lanka has created a predominant regu-
lator, the Public Utilities Commission of Sri
Lanka (PUCSL) through an act of the Sri
Lankan parliament in 2002, for the regula-
tion of public utility industries in Sri Lanka.
It is this regulatory body that discharges
the regulatory function. This body is the
independent economic regulator of public
utility industries in Sri Lanka. Currently, it
is mainly the electricity industry that the
PUCSL regulates. As and when further leg-
islation is passed by the parliament, more
industries can be brought under the regula-
tory control of this body. Several statutory
provisions have been kept to preserve the
independent nature of this body. These
range from specifying the qualifications
and disqualifications that determine the
candidature of a person for occupying the
position of a commissioner in the regula-
tory body to provisions that ensure finan-
cial independence of the body.
In France, the system followed again
strives for uniformity of regulation, only a
little differently. While there are no over-
arching laws that ensure uniformity like in
the United States or an overarching body
that functions as a super-regulator, as in
Sri Lanka, in France the definition of a sec-
tor has been broadened in certain cases
which ensure uniform regulation within
the sector. For instance, in France, there
is the Autorite de Regulation des Activites
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Ferroviares et Routieres (the Rail and Road
Authority)—ARAFER—that regulates the
bulk of the transportation sector. This
seems to be more practical, since it takes
care of the uniqueness of a particular sec-
tor without tying it down to a one-size-fits-
all kind of overarching regulation. Both rail
and road essentially serve the same public
need. Hence it is logical to club them in a
uniform regulatory framework.
Issues to Be Pondered Over
We are, today, in an era where govern-
ments, particularly democracies, are mov-
ing ahead with liberalization policies in
most spheres, thereby unshackling direct
government involvement and control in
many sectors. Perhaps the thinking is that
the governments should, gradually, retract
from the role of an operator and concen-
trate solely on excellence in governance,
which is the principal role of the govern-
ment. With this guiding focus, there are
many sectors where the government has
brought in or is keen on bringing in pri-
vate players on board, to take over the
government’s existing role of an operator.
Whenever a government moves to priva-
tize a particular sector, fairness demands
that an even chance be given to all inter-
ested and capable private players to take
over the reins of the sector. This being so,
competition is an inevitable fallout. Un-
checked competition in private hands may
turn fierce in the course of time, and then
turn unscrupulous for preservation of the
desired levels of returns and revenues. The
only lubricant for spinning the wheels of
business is a healthy stream of revenues.
Intense and unhealthy competition in a
sector being operated by competing private
players may additionally result in public
interest being relegated to the background
and business interest hogging the limelight
alone. But it is primarily for the protection
of public interests that the government ex-
ists. Hence, the need for an independent
sentinel! A sentinel that ensures protection
of public interests along with observance of
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