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October 2017 From the Editor

Published on: 2017-10-04 21:07:34     440 times read    0  Comments
Regulatory Lacunae

Business problems in Nepal are mostly related to poor regulations.  And better regulations themselves don’t yield results. What matters more is the competence of the regulatory body. From regulatory standpoint, the businesses in Nepal fall under three categories: (a) regulated by government departments, (b) regulated by independent bodies that have transparent regulatory mechanism and have truly professional officials and staff, and (c) regulated by regulators that are independent in name but not in essence.  

The problems are the lowest in businesses that fall under the second category (such as banking sector) and the highest in those that are in the first category (such as infrastructure construction). In the b and c categories, the businesses and the consumers are compelled to behave as a group of blindfolded people roaming around the market square: buying wrong goods and trying to sell to wrong persons and resulting into unpleasant clashes. This is the reason for the rampant corruption in market place as well in government. Businesses exploit consumers because businesses too are exploited by the bureaucrats adding to the business cost which results in higher price to the consumers. 

This presents a strong case for setting up separate independent regulators for as many sectors as possible and coercing those regulators to develop transparent regulatory mechanism and employ professionals in their staff. It is not to say that the sectors regulated by independent bodies are doing excellent. But comparatively speaking banking and insurance sectors are in better shape. The companies and their customers can raise their grievances and hope their problems will be addressed in comparatively transparent way. But the same cannot be said in case of construction sector, agriculture sector or in supply of daily necessities that are regulated by government departments which cannot be good regulators.  Because, one, they are manned by administrators who don’t have the skills and training needed to be good regulator of businesses. Two, the administrators get frequently transferred. Third, these departments are often themselves the major buyers of the goods and services sold by the businesses that they regulate (construction sector is the best example in this). 

If there is independent regulator for construction sector, any complaint against a construction company (be that from the government or from an individual) will be lodged with the regulator which can decide also against the government. But in the present situation, government department need not lodge complaint anywhere. It can unilaterally decide against the construction company. The company can go to court in principle, but that is not practical solution. So, the company tries to settle somehow by pleasing the bureaucrat.  This develops an unholy friendship between the company and the bureaucrat. If an individual complaints against a construction company, the decision is most likely to be in favour of the company. 

Let's also consider the frequent dispute between the sugar mills and sugarcane growers. Existing system has miserably failed to manage this resulting in frequent scarcity and glut in the market. Last minute rush to import sugar is further demotivating the farmers. An independent regulator in this market would be able to focus on continuously monitoring the value chain, thus timely assessing the possibility of scarcity or glut. This will enable it to give timely advice to the government either to buy excess quantity or to release required quantity from government reserve to ensure price stability and sufficient availability.  It can also implement a transparent reporting system so that the information about the quantity of sugar in stock with each of the supplier (from producer and importer to important wholesaler) in almost every important market in the country is available with the regulator on daily basis. The government department cannot do so.  Similar arguments can be made for setting up independent and competent regulator for each of the markets, be it foodgrains, electricity, petroleum, cooperatives or agricultural inputs. Yes, all the problems will not disappear just by setting up an independent regulator. But once an independent body with such responsibility is set up, it can be coerced to develop professionalism and efficient system.

Madan Lamsal

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