India needs efficient supervision, simple regulation: Sanjeev Sanyal

NEW DELHI: Principal Economic Adviser Sanjeev Sanyal on Thursday made a case for focusing on supervision rather than regulation, saying this approach increases efficiency and reduces compliance burden.

Better supervision could have avoided the IL&FS crisis and Punjab National Bank fraud, he said.

In a discussion paper — 'Risk vs Uncertainty: Supervision, Governance & Skin-in-the-Game — he called for a simpler regulatory framework supplemented by efficient supervision.


The problem is that supervision demands active monitoring and accountability from the government departments or regulatory bodies, which creates a perverse incentive to keep adding more top-down regulations regardless of their effectiveness, he said.

“If you had a simple law and some degree of supervision, everything would be much better...If you have simpler rules, there are fewer things to comply with. In simple system everyone know what it is,” he said.

Besides, complex regulation is not going to solve the problem of ex-post resolution because you live in an uncertain world, he said.

“Therefore, if things are going to go wrong, you have to allow for the fact that expost resolution is important. You therefore have to invest in judicial system,” he added.