The Central Bureau of Investigation (CBI), which has launched several unnecessary and misinformed investigations in the recent past that it has had to subsequently withdraw, seems to have made a similar mistake again. In August, the CBI was forced to close the investigation into the former chairman of the Securities and Exchange Board of India (Sebi), C B Bhave, and a senior member of the Board, K M Abraham, who had been accused of breaking the law when they granted MCX-SX permission to function as a stock exchange. That was found to be an entirely reasonable regulatory decision. Now the CBI is going after another set of regulators, the Insurance Regulatory and Development Authority, or IRDA.
The CBI’s claim is that the IRDA, which imposed a penalty of Rs 20 lakh on Reliance General Insurance Company Ltd in 2009, violated guidelines – and it should instead have imposed a fine of Rs 17,500 crore. The chairman of IRDA at that time, J Hari Narayan, has already been interviewed by the CBI. There is a legitimate question to be asked about whether the discretion afforded to regulators is too wide. For example, “consent orders” of Sebi may have too easily and cheaply closed investigations into wrongdoing by companies. But the suggestion that a Rs 5-lakh fine must necessarily have been imposed for every single one of the 350,000 policies that were considered in violation of guidelines is clearly excessive. Certainly, it is difficult to see how a fine of Rs 17,500 crore could be borne by any general insurer in India. Clearly, a sensible regulator would take into account logic and common sense, and ensure that a fine is not so high that the entire industry be wiped out.
The larger issue, however, is one of witch-hunts. If the CBI persists in this course, it is impossible to see how any state functionary will take a legitimate and logical decision. Almost every single decision taken by a regulator or a bureaucrat could be seen in some way as benefiting some private individual, or some company – at least if they are doing their job properly. If any such decision could excite the interest of the CBI, then administrative paralysis will be hard for India to snap out of. Worse is the tendency to go after retired bureaucrats or regulators, who have little access to files and few resources with which they can defend their legitimate decisions, sometimes taken over a decade ago. This is not merely unjust and unfair. It means that the precautionary principle will apply – if any action could be investigated many years later and with the benefit of hindsight, then no action will be taken at all. The sensible use of discretion will be abandoned totally. And that will hurt the Indian economy immeasurably. Prime Minister Narendra Modi, shortly after he took office, rightly urged senior civil servants to take sensible decisions, saying he would support them. But with an unaccountable CBI on the loose, the prime minister’s urging could fall on deaf ears.