View: Is self-regulation defeating its purpose?

Last week, the Government of India warned edtech companies against indulging in unfair trade practices saying it would be compelled to bring stringent guidelines if there is no self-regulation by the industry players.

Earlier in June, the ministry of consumer affairs notified the guidelines under the consumer protection act to clamp down on misleading advertisements. Incidentally, these guidelines are similar to the existing self-regulatory code framed by the industry body Advertising Standards Council of India (ASCI). However, unlike the ASCI code, the government guidelines are legally binding, and their violation attracts penalties.

The Central Bureau of Investigation (CBI) is probing the role of pharma companies in allegedly bribing the Central Drugs Standard Control Organisation (CDSCO) officials after the agency made a few arrests last month including that of a joint drug controller and a director of a company that was allegedly acting on behalf of various pharma companies in bribing the CDSCO officials. To be sure, the pharma companies have industry associations and a self-regulatory ‘Uniform Code of Pharmaceutical Marketing Practices’ (UCPMP) to curb unethical practices. The Supreme Court of India has, in March, issued a notice to the government in a petition seeking to make UCPMP a mandatory code.

The common theme across all these instances is an industry’s failure to self-regulate. Despite being immensely beneficial, self-regulation by the industry has typically been found to be difficult and ineffective and law finally needs to intervene to bring in reforms. It’s not that the regulators in India are not in favour of creation of self-regulatory bodies to govern members. They indeed prefer a layered regulatory structure as opposed to slapping regulations at the first instance. Limited resources and bandwidth to increase regulatory oversight is also the reason behind such a preference. There is also the worry that levying regulations early on may hinder innovation in an industry and discourage investment in new ideas.

However, the self-regulation premise of an industry is often seen to be misused in the real world. It is treated as a basis to dodge regulations, and then its failure invites regulatory scrutiny and eventually regulations. But during this whole process, it is the end consumer that suffers – having to deal with an industry that is unregulated to start with, then becomes self-regulated and then deterioration in service finally prompts regulations.

Here the moot question is why are industry associations ineffective in reining the rogue practices of their members even as they make representations to the government demanding ease of doing business.

In a country where law enforcement is weak and legal redressal can take ages, a voluntary code of conduct hardly acts as a deterrent for a business owner who is a member of such an industry association. The basic business principle of profit maximisation poses a big obstacle to self-regulation. Besides, the governance structure of the industry associations is often weak, controlled by the biggest in the industry. There is an inherent conflict between promoting the interest of an individual member and advocating the larger interest of the group.

This failure at self-regulation is not just an Indian phenomenon. Globally, industries have done a poor job at self-regulation. The 2008 financial crisis has been blamed on the failure of self-regulation. The recent crash in the self-regulating cryptocurrencies has reignited calls for regulating them. Nevertheless, there has been a steady growth in the popularity and number of self-regulatory organisations over the years. The surge is being seen as a sign of maturing business ecosystems.

In May this year, the Federation of Indian Chambers of Commerce and Industry (FICCI) unveiled a self-regulatory code of conduct for online diagnostic platforms in India. The move came in after the government, on the directions of the court, raised quality concerns. While the code is a welcome move for a fast-growing but largely unregulated industry like diagnostics having low entry barriers, self-regulation shouldn’t mean the freedom to remain unregulated or deregulated. The pandemic has underscored the importance of availability and accessibility of diagnostics as a critical medical service. It remains to be seen whether the attempt of the e-diagnostic industry to self-regulate works or goes the same way as that of ed-techs.

Letting businesses to self-regulate remains a chicken and egg issue. It is difficult to decide whether a mature business ecosystem lends itself to self-regulation or self-regulation helps businesses attain maturity. The need of the hour is strong and conscientious regulators that are independent of corporate influence and ones that promote self-regulation to let the businesses grow and mature rather than as a matter of executive convenience.


This website uses cookies. By continuing to use this site, you accept our use of cookies.