2.4.3. Design of the regulatory bodies

The problem of regulatory design has been most visible in India’s banking sector. Even though public sector banks hold two-thirds of the deposits in the formal banking sector, the RBI’s powers are limited and its ultimate authority is confined to the regulation of private and cooperative banks. When the government is both owner and regulator, a conflict of interest is inevitable and a level playing field unlikely.

There are also concerns regarding the vertical division of power, as seen in India’s power sector. The implementation of the Electricity Act, 2003 has been severely affected by the interaction and misalignment between the state and central governments.