Source: Mint
Context:
- Experts are calling for the institutionalization of Regulatory Impact Assessment (RIA) in India’s securities market to ensure that every new rule passed by SEBI is tested for necessity, proportionality, and economic consequences.
- The Problem: India’s regulatory framework has become dense, with over 44 principal regulations, 13 statutory rules, and more than 2,700 circulars. The cumulative cost of these frequent changes is creating high entry barriers and “regulatory inertia.”
- The Omission: While the government is working on a new Securities Markets Code to consolidate laws, the current draft reportedly omits a mandatory requirement for RIA.
BACKGROUND CONCEPTS
- Regulatory Impact Assessment (RIA): A systemic approach to critically assessing the positive and negative effects of proposed and existing regulations and non-regulatory alternatives.
- Information Asymmetry: A situation where one party in a transaction (e.g., a company insider) has more or better information than the other (e.g., a retail investor). Regulation aims to bridge this gap.
- Delegated Legislation: Laws made by an executive authority (like SEBI) under powers given to them by an Act of Parliament. Since these aren’t debated in Parliament, RIA acts as a crucial “discipline” check.
- Ex-ante Assessment: An evaluation conducted before a policy is implemented to predict its potential impact.
- Sunset Clause: A provision in a law or regulation that specifies it will automatically terminate after a fixed period unless it is formally extended.
THE 5-STEP RIA FRAMEWORK
The authors propose that every new regulation must pass these five tests:
- Clarity: Is the problem being solved systemic (permanent) or episodic (one-off)?
- Alternatives: Can the goal be achieved through better enforcement or market incentives instead of a new rule?
- Cost-Benefit Analysis: Do the gains in transparency outweigh the costs of technology, personnel, and liquidity impact?
- Consequences: Will the rule push activity into “grey areas” or create a monopoly for large players who can afford compliance?
- Post-Implementation Review: Does the rule actually achieve the intended outcome, or should it be removed?
CONCEPTUAL MCQs
Q1. What is the primary difference between “Ex-ante” and “Post-implementation” reviews in the context of RIA?
A) Ex-rate is about currency; Post-implementation is about taxes.
B) Ex-ante assesses potential impact before a rule is made; Post-implementation tests the actual outcome after the rule is active.
C) Ex-ante is for private companies; Post-implementation is for the government.
D) There is no difference; both terms refer to the same process.
Q2. Why is “Delegated Legislation” (like SEBI circulars) cited as a reason why India needs mandatory RIA?
A) Because delegated legislation is passed by the President and cannot be challenged.
B) Because these rules are not debated in Parliament, making structured independent impact assessments necessary for accountability.
C) Because it allows SEBI to bypass the Supreme Court.
D) Because it reduces the number of circulars issued every year.
EXAM RELEVANCE
| Exam | Focus Area | Relevance Level |
| SEBI Grade A | Securities Laws; Role of SEBI; Market Reforms | Critical |
| RBI Grade B | Finance – Financial Sector Regulators; Governance | Very High |
