Arpita Pattanaik and Anjali Sharma have a thoughtful post on the topic.
They point how the two regulators do not care much for public consultations:
Regulations which are issued by regulators, have the full status of law. A person who violates a regulation stands to be punished exactly like a person who violates a law. But regulations are written by unelected officials. Ordinarily, in liberal democracy, the power to make law is restricted to those who have won elections. How do we reconcile this contradiction? The answer adopted, the world over, is to establish a sound regulation-making process, through which unelected officials do not have arbitrary law-making power.
Under sound public administration, when unelected officials wish to draft regulations, they should articulate reasons. All regulatory actions result in both costs and benefits for regulated entities and the market. In a good system, only those interventions, for which the benefits exceed the costs, are implemented. This requires regulators’ to carry out a formal cost-benefit analysis and engage with the public through a consultation process.
Such transparency in the regulation making process has many benefits. It anchors the financial system by providing legal certainty. It creates transparency and predictability about the values and goals of financial policy and regulation making, and accountability in regulatory actions. As an outcome, market participants are able to conduct their business with confidence. Das et. al. (2004) find that balanced degrees of transparency, accountability, integrity and independence of the regulator, result in a sound and improved financial system.
In the Indian landscape, financial sector regulators have been endowed with a surprising mix of powers by the Parliament. They can make laws, enforce them and punish regulated entities that violate these laws. Often regulatory actions enjoy protection from judicial review as they are deemed to be “actions taken in good faith”. However, the regulation making process followed by financial sector regulators in India is nowhere close to these standards. Regulations are issued as unilateral pronouncements. Little or no detail is provided about the problem being solved or the reason for the regulatory action. Often, there is a real risk of a ban on products (example), a ban on participants (example), retroactive changes in tax policy (example), changes in margins (example), position limits (example 1, example 2) and trading lots (example) and changes in investment norms (example) being introduced without any warning or rationale.
These maladies are part of the problems faced in doing business in India. The Report of the Standing Council on International Competitiveness of the Indian Financial Sector finds that mistakes in financial regulation and regulatory uncertainty are important factors that hamper financial market development across market segments in India. In contrast, jurisdictions that are or seek to be centers for international finance, follow robust regulatory governance practices and ensure regulatory certainty.
These issues are hardly even talked about. FSLRC/IFC has been reduced to just gibberish on constitution of MPC.. What a pity..
Read the whole post. Quite informative..