In any game you need an umpire. However, that umpire should not in any way affect the flow of the game or disrupt it. He should ensure fair play, ensure that the players play by the rules and when those rules are broken, the erring player should be hauled up and penalised. In short, the job of the umpire is to ensure a fair game.
This is exactly how a regulator is supposed to function. But, in many areas, regulations have grown into thickets of bramble bushes that make negotiating the terrain quite challenging. Industries that have such confounding regulations struggle. The players there would be jumping through one hoop after another regulatory hoop, leaving them exhausted and emasculated. In such industries, surviving and making some money by itself is a big achievement.
But regulators are not ogres they are made out to be. They are people with good intentions and want to play their part in orderly conduct of business. But, good intentions alone are just not enough.
Cut off from reality
Regulators in general do not seem to have an ear to the ground. They go as per hearsay and what they learn from some of the messengers they have cultivated. But these messengers themselves are usually market participants, with an axe to grind. Hence, their reportage mostly does not tend to be accurate and is self-serving.
Sometimes, they shape the regulation in a certain way to address a problem, which either tends to be a wrong way to tackle the problem or is intended to show them in good light. Some regulations tend to be great on optics but could end up doing great harm.
Cost escalating regulatory framework
Let us see some examples of regulatory overload. Industrial building regulations limit the amount of land that can be used while building on the plot. It varies from 40-60% depending on the state so that the density can be controlled, ground water recharge can happen, there is enough space for parking etc. However, this pushes up the costs and makes the product produced costly and uncompetitive, as it is far more stringent than necessary especially in comparison with competing countries.
Compound this with high cost of power and other inputs for commercial enterprises, duty inversion of raw materials in many cases, lack of trained workforce, higher input costs as compared to other competing countries which all make for a challenging environment.
Aviation sector is in a league of its own with a bucket full of woes. There are rules and regulations that make operating an airline very difficult. There are many endemic issues which anyway compounds the problems. ATF is costly and contributes to 40-50% of operating expenses of an airline. Ticket prices are deregulated but government can lean on the airlines. Lack of adequate number of airports, inadequate runway and other infrastructure at the airports, lack of adequate demand in smaller airports, proper intermodal connectivity from airport to public transport systems are all bottlenecks that makes this sector hobble.
Restaurant business is a tough one with about a dozen licenses to get before starting one. We cannot fault the system as there is a reason why each of these licenses are needed. But can there not be a one window clearance for all these for a budding restaurateur? It would have been helpful and would have gone a long way in being business friendly.
In restaurant business, the mortality rate is said to be about 95%. Aviation is known as a business that bounces back and forth between losses and low profits in good years. Also, aviation is a highly capital intensive business with long gestations for break-even. So is telecom sector, with humungous investments to be done for spectrum and equipment.
Regulators and the government have to recognise the challenges faced by the industry and play an enabling role. Only when these industries thrive can it contribute to the economy, create employment and contribute by way of taxes.
Regulations and rules should hence be what will help the industries in the sector function in an orderly fashion and thrive. They should not be tightened like a noose due to lax enforcement. That is lazy, unimaginative and counterproductive. And toxic for business.
Regulation should be an enabling scaffolding that supports and regulates industries rather than becoming the edifice on which the industry needs to somehow cling on and survive. Some regulations have become those edifices!
(Suresh Sadagopan is the MD & Principal Officer at Ladder7 Wealth Planners and the author of the book “If God Was Your Financial Planner”.)
Views are personal, and do not represent the stand of this publication.
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