Know Your Regulator: Special Edition on Water Authorities in Maharashtra and Punjab

Briefing Note: The Maharashtra Water Resources Regulatory Authority (MWRRA) and the Punjab Water Regulation and Development Authority (PWRDA)

Setting the context for regulating water

The Maharashtra Water Resources Regulatory Authority (MWRRA) is the first independent statutory regulatory authority in the water sector in India. The MWRRA Act was enacted in the year 2005 and the Authority was established in the same year. The creation of MWRRA marked a significant shift in how water resources were managed in the state. Following the establishment of MWRRA, a number of states including Arunachal Pradesh, Uttar Pradesh, Kerala, and Gujarat enacted laws for the establishment of independent water regulators. The operationalisation of these state regulators, however, has been slow. Recently, the state of Punjab constituted the Punjab Water Regulation and Development Authority (PWRDA) under the Punjab Water Resources (Regulation and Management) Act of 2020. PWRDA is the newest addition to the club of state-level water regulatory authorities in India.

In India’s federal organisation of powers relating to water, it is a State subject (Entry 17 of the State list) in the Constitution of India, subject to the powers of the Centre under Entry 56 (regulation and development of interstate rivers) of the Union list. Largely, the narrative around water governance is dominated by the constitutional provisions related to inter-state water disputes and their resolution under Article 262. However, the focus of State-level water regulatory authorities is on intra-state management, and on ensuring efficient, equitable and sustainable use of available resources within the State.

Water stress puts lives and livelihoods at risk. Limited avenues of water supply coupled with an ever-increasing demand place India amongst countries with ‘extremely high’ levels of baseline water stress.[1] Ground water is severely over-drawn leading to its depletion throughout the country. Surface water in the form of rivers, lakes and streams is also under stress. Although water scarcity is a huge concern, India’s water resource challenges also extend to the quality of available water resources. The Composite Water Management Index of the NITI Aayog confirms that only around 28 per cent of India’s water resources is utilisable.[2] Due to such conditions of stress, inter-state contestations for water, related to, both, water share and quality are surfacing often.

Prolonged water stress can adversely impact public health and economic development. The country’s approach towards Water Resource Management (WRM) assumes great significance in this context. Undoubtedly, prevalent water stress and risks are an outcome of the WRM strategies pursued so far. India’s approach to WRM has essentially relied on the paradigm of supply augmentation.[3] As such, public irrigation development remained the focus. This approach is fraught with its own set of issues – outcomes included regional inequities in irrigation development, and less than desirable results from significant public investments in construction of dams and physical works. Simultaneously, private investments in ground water irrigation increased.

Scope and Design of Water Regulation in Maharashtra and Punjab

MWRRA and PWRDA are statutorily tasked with managing and regulating water resources in their respective states. The Authorities are expected to ensure the ‘judicious, equitable and sustainable’ utilisation of water resources. A significant difference between the two State Authorities is that while groundwater management falls under the purview of the Punjab Authority, the Maharashtra Authority’s role in relation to groundwater is limited. A separate statute, namely, the Maharashtra Groundwater (Development and Management) Act, 2009 lays down the framework to manage and regulate groundwater in the state. This statute also establishes a State Groundwater Authority and District Level Authorities to implement statutory provisions.

The MWRRA Act focusses principally on the management of water from the state’s irrigation projects: there are five such major projects run by Irrigation Development Corporations, which are referred to as ‘River Basin Agencies’ in the Act. The Act covers these River Basin Agencies and ‘water entities’, which include individual water users, water user associations et cetera. It envisages a multi-level structure for determining water use, which includes allocations between ‘categories of use’ (such as agricultural, industrial, drinking water etc.), and ‘entitlements’ for water users from irrigation projects. Following recent amendments in the Act, allocations between categories of use are determined by the State Cabinet and are applicable uniformly to all the River Basin Agencies in the State. The role of the Maharashtra Authority is to make regulations which set out criteria for issuance of entitlements, priority of water distribution during periods of scarcity, and to ensure equitable distribution at all levels of irrigation management. River Basin Agencies issue entitlements to water users on the basis of these regulations.

The Maharashtra Authority is required to make regulations for setting up a water tariff system based on the principle of full cost recovery of operation and maintenance charges. The Authority has the power to adjudicate disputes between River Basin Agencies and water users. In addition, the Authority has a range of executive functions, including to administer, monitor, enforce and supervise its orders, directions and regulations, and to review and clear water resources projects proposed at the sub- basin and river basin level.

Groundwater is one of the main focus areas of the PWRDA Act. The Punjab Authority has control over groundwater extraction installations, to approve the setting up of new ones, and to set conditions and restrict the use of existing installations. Users drawing groundwater are required to register their structures with the Authority. In terms of the Act, extraction of groundwater for drinking water use is exempt from these restrictions and control. Further, under the draft guidelines issued by the Authority, extraction for domestic and agricultural use is also presently exempt from restrictions and control.

The PWRDA Act also provides for setting of tariffs for water supplied to industrial, and commercial users. In this role, it covers all ‘entities’, including any person or organisation or authority, and including local bodies, boards, government corporations and departments that supply water for industrial and commercial use. Charges for supply of water for drinking, domestic and agricultural use by these entities are however outside the purview of the Authority and are meant to be as per policy set by the State Government.

The Punjab Authority can also issue directions for the optimal use of surface water, and provide advice to the State Government in relation to canals and surface water, but it has relatively little direct influence at present in relation to surface water. The Authority also has power to administer, monitor, implement and supervise its regulations, directions and orders.

Both state laws provide for Integrated State Water Management Plans, to be made by the State Water Board (in the case of Maharashtra) and the State Government (in the case of Punjab), and in both cases to be approved by councils headed by the Chief Minister. The powers and functions of respective Authorities are meant to be exercised in conformity with these Plans. They also provide for considerable influence of their respective State Governments over the affairs of the Authority, including to approve regulations and to issue directions. The State Governments also have influence in financial and operational matters.

Both authorities are headed by a Chairperson. While MWRRA requires 4 expert members, PWRDA requires 2. In addition, the former engages 5 special invitees (one from each river basin agency) of which at least one should be a woman. The latter has an advisory committee comprising the chairperson and 5 experts.

Issues and Challenges

Economic transitions, and the shift to privatization has been commonly seen as the rationale for setting up regulatory agencies, such as for electricity, telecoms and pensions. In other cases, regulatory authorities have been set up to establish standards, norms and terms of engagement for businesses, such as in real estate, food and for financial products. The case of water authorities does not follow these trends. Large scale privatization of water resources is absent in India, and not envisaged in the foreseeable future. The problems of the sector are the sequencing of policy and institutional reforms, and perhaps the depoliticization of this reform process.[4] However, while overcoming political uncertainty was the rationale for the setting up of water authorities, there is still a considerable role for state governments in the affairs of the regulatory authorities.

Moreover, reforms envisaged for the water sector are complex and politically difficult. There are strong equity and developmental considerations, and strong interests around existing allocations and use. Ironically, much of the existing practice relating to irrigation and water use in the states has been set up through government subsidy and support. The Maharashtra law is quite ambitious in that it takes agricultural use into its ambit. In Punjab, on the other hand, groundwater is a much more salient issue, and presently the State Government has only limited influence over its extraction and use. The law therefore is quite ambitious in that it seeks to establish state control over groundwater, although at the moment this extends only to industrial and commercial extraction. Long-term outcomes are however likely to be dependent on how states and regulators are able to work together to facilitate stable transitions.

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‘Know Your Regulator’: Mr. Supratim Bandyopadhyay, Chairperson, Pension Fund Regulatory and Development Authority (PFRDA)

The State Capacity Initiative at the Centre for Policy Research (CPR)’s talk series titled: ‘Know Your Regulator’ is held in collaboration with the National Council of Applied Economic Research (NCAER), the Forum of Indian Regulators (FOIR) and the Indian Institute of Corporate Affairs (IICA). In this talk series, we are talking to chairpersons and members of India’s regulatory agencies about regulation of Indian markets and the economy.

Our guest for the fifth event in the series was Mr. Supratim Bandyopadhyay, Chairperson, Pension Fund Regulatory and Development Authority (PFRDA).

He was in conversation with Dr KP Krishnan, Former Civil Servant and Dr Abha Yadav, Associate Professor, Indian Institute of Corporate Affairs and Director of the Forum of Indian Regulators (FOIR) Centre at IICA.

Mr Praveen Kumar, Director General and CEO of the Indian Institute of Corporate Affairs and Ms Arkaja Singh, Fellow, State Capacity Initiative, Centre for Policy Research made introductory remarks.

Date: 21st January 2022

The background note on PFRDA can be accessed here

Conversation summary:

What were the problems that PFRDA was set up to address? How did it address these problems?

Serious conversation around the pension system, particularly the common pension system, started in mid or late 1990s. There were two reports – one by OASIS (Old Age Social and Income Security Project) and another by a High-Level Committee headed by Mr. B.K. Bhattacharya (senior civil servant) – that pointed out that the current defined benefit scheme is becoming unsustainable. The growth in pension bills, especially after factoring in defence pensions, were taking away large parts of revenue for both central and state governments. The political will of the leaders at the time enabled them to undertake strategic reform in the pension sector. Another thing that happened was the increase of 2 years in retirement age (58 to 60 years) in 1998.

The moment you go from an unfunded to a funded pension system (which is the basic difference between the earlier and the current system) – there has to be certain regulations, rules on fund management so that the benefits of employees are protected.

When we were planning this shift, we also thought about the unorganised sector, retail customers, and so on. So at that time, even though we started with the central government, and now all but two state governments have joined. Thereafter, we opened up to retail segment in 2009 and then to corporates as well. Today, the net addition from government sector has come down for obvious reasons while there is growth in contributions from the retail segment, corporates and unorganised sector. Hence, the purpose for which the PFRDA was set up is being fulfilled to a great extent, and unless we have platform to see that all subscribers, fund managers, data keepers are integrated, the purpose wouldn’t be served – hence we have ensured data security and robust connectivity between all intermediaries.

The PFRDA is a unique system because we work with 5-6 intermediaries, each of whom do different jobs. For example, pension fund managers only offer fund management service but don’t keep data. The PFRDA has a big role in ensuring the system works seamlessly and robustly.

Has PFRDA been pushed into a narrow box of looking after NPS, and should EPFO and other sectoral issues be brought under the PFRDA’s jurisdiction?

The birth of PFRDA was under some kind of a conflict – if you look at the pension sector, pension was already a part of IRDA’s domain and insurance companies are selling pension for over six decades. But pension is too serious a business to be left to different segments and regulators. There should be a single-point focus for pension.

Concerning gig workers, we had some discussion around a universal pension scheme, which has now received a mention in the Code on Social Security, 2020. This needs to be notified soon since gig workers really need pension today. Atal Pension Yojana is doing quite well, with 7 million new customers joining this year. While we are expecting around 10 million, the number we are actually looking at is 460-480 million, which is the number of people in the unorganised sector looking for some kind of old-age support. The question is: how do we reach out to them? There are self-managed superannuation products that don’t come under any regulator’s ambit. They get income tax approval and manage on their own. So we do not know whether contributions are made regularly, whether employee’s benefits are protected and if they get the right kind of payouts. So, in the long run, it will be prudent to place pension as a whole under one regulatory body.

Organisational structure of PFRDA

PFRDA is headed by a chairperson, and has three whole-time members (finance, economics, law). The board also has three part-time members, usually senior government officials nominated from the Department of Financial Services, Department of Personnel and Training, Department of Expenditure, and so on. We are supported by employees, all in the officer cadre. Currently our strength is 75-76 people, and we are in the process of recruitment. In two years’ time, we plan to have around 130-140 people, because certain activities like pension-related research, and we need separate inspection teams. We need presence in other regional centres, starting with Mumbai.

PFRDA currently has no independent or private members, but the  PFRDA Act does not prohibit this. The three part-time members can be anybody, including experts in their fields.

Regulatory method: elements of executive, adjudicatory and legislative functions

PFRDA has all three functions: legislative, executive and adjudicatory.

Under Section 52 of the PFRDA Act, we make regulations for all intermediaries – pension fund managers, central record keeping agencies, trustee bank, NPS trust (trust structure that manages the assets on our behalf).  The executive part is that we go for registration of entities, supervise and monitor their performance, audit and inspect them, determine their fees and charges. Through those inspections and monitoring systems, if we find breaches in regulations, we adjudicate under Section 30 of the PFRDA Act. We have the power to call for all their records, and if we find a breach we can impose penalties.

PFRDA has independence in these matters. Most of these decisions are with the board – the board is the final authority in this. The central govt comes into the picture to the extent that the benefits of central govt employees are concerned. For instance, three years back the government decided on the recommendation of the 7th Pay Commission to increase their contribution from 10 to 14%. Further, PFRDA has no say in the CCS and NPS Rules, which comes from the Department of Pension and Pensioners’ Welfare. Apart from this, the government does not interfere with PFRDA’s independence in the above-listed functions.

Main features of the terms of engagement set by PFRDA between savers and the sellers of pension products

NPS is a given product, pension fund managers manage funds on our behalf. Points of presence (POPs) are distribution channels of this given product. PFRDA tries to ensure that there is transparency in the system, to ensure that whoever comes into the system will know what the costs are like. NPS is probably the lowest cost financial product not only in the country but possibly in the world as well. We can say this because we engage with many international organisations of pension supervisors. IOPS looked at our overall cost structure and told us that we were outliers. We’ve also looked at lowest cost jurisdictions across the world and we are far below them. So we give low cost benefits, lots of information and data and lot of flexibility to the customers.

One important thing that came out in the High-Level Committee report was the issue of portability: govt employees who had not rendered a certain number of years of service wouldn’t get pension, and wouldn’t be able to transfer this either. The biggest advantage that the current system has is portability. Regardless of whether you are in the govt or private sector or on your own, you will have your unique account. You’ll just have to pay Rs.1000 annually to keep the account alive.

On the issue of sustainability, we aim to make the operation of intermediaries sustainable. At regular intervals, we look into their cost structures. For example, we have rationalised the cost structures of central record keeping agencies. Now we are looking at the cost structures of POPs. In order to take NPS and APY to the masses, we are telling POPs now that they can induct individuals into the system as well. In April 2021, we rationalised the fund management charges of the pension fund managers because they were running into losses. We have had 3 new licenses being granted for pension fund managers since then (we had 7 earlier). So it’s fair play between subscribers and service providers.

Who are the key players in this system beside the employer, employee and pension fund? What is the role of state and central goverments?

Each job in this system is done by a group of experts.

  • For example, we currently have 93 POPs – these are banks, NBFCs, and so on.
  • We also have retirement advisors, though this hasn’t gone quite well. Now we are going into individual players in the distribution market.
  • Central record keeping agencies (CRAs) keep the data of the customers, instruct banks (through which the money flows in) on which fund manager the money should go for investment. They are the central piece of the system. We currently have three – Protean E-Gov Technologies, KFintech and CAMS (they will start operation from next month).
  • We have a single trustee bank – Axis Bank – that manages the entire fund, right from the POPs and customers, to the pension fund manager, based on the direction of the CRAs.
  • Pension fund managers: There are 7 active ones and 3 licenses have been recently issued, so in the next 3-4 months they’ll be up and running.
  • Annuity service providers: Today, in the Act, the only way of exit is through annuity. You can take back 60% of your corpus tax-free and 40% has to be converted into annuity. This conversion process is tax-free of course, but the annuity is taxable. We have about 14 annuity service providers, all of them being IRDAI-conferred entities. We have been looking at other pay-out products as well, and it is part of our proposed PFRDA amendment bill. If it comes through, it will give a lot of options to the retiring public who are subscribed to NPS.
  • The nodal officers of governments are our intermediaries – they ensure that when the monthly salary is paid, the exact amount is deducted from the salary, and the contribution of the central/ state govt is added together and then sent to the system. Here, the biggest challenge we face is the delay: (i) not deducting in time; (ii) even if deduction happens, the money is not coming to the system in time. The system is very dynamic today: if you give the money today, it will get invested today itself; hence a delay of 20-30 days entails an opportunity loss. For the first time, in CCS-NPS Rules, a provision is brought in that if there is a delay there will be a penalty, including individual penalty. The proposed amendment bill also provides that the dues will be treated like any other statutory dues.

Justification for pensioners’ benefits being market-linked

Chairperson, PFRDA: The previous and the current pension schemes are not comparable at all. Firstly, no amount of contribution was required in the previous pension scheme. Secondly, retirement ensures a 50% replacement rate and is adjusted to inflation every six months, in the new scheme; recovery and wage rise with every pay commission also brings adjustments to old pension.

In a market-linked scheme, we monitor the performance of pension fund managers, we have strict investment guidelines with some scope for growth, and we ensure that they do not become too adventurous because these are retiree’s monies. Since 2009, we have managed the private sector as well, and over 13 years the CAGR under our equity scheme is 13.5%. Even corporate bond funds have given a CAGR of 9.72%, despite several corporate market events. The government bond performances are a little lesser, but that is around 9.3-9.4%, because the interest rates are hardening today. If you look over a period of time at blended return of an equivalent amount in equity, corporate bond and govt securities, it will still be over 10%. We have benchmarks in place and ensure that pension fund managers work close to them, and if there are huge deviations we hold them accountable. Financial markets have volatilities in the short term, but over a period of time we ensure that the right kind of securities are chosen for subscribers and they get a sizeable corpus.

Dr. KP Krishnan: This discussion takes us to the knife-edge job of the regulator, it is not the regulator’s job is not to ensure good returns to the subscribers but to ensure no malpractices and that the regulated entities act according to the prescribed behaviour, and a lot of the risks are to be taken by the informed investor. What you have brought out nicely is the difficulties in a pension situation where the choices are not necessarily exercised by the investor, so there is a dilution in the role of the investor, which then is performed by various actors.

On the issue of early withdrawals and annuitisation of the pension corpus: individuals tend to be less concerned about building a long-term corpus for themselves than society is.  How much of this should be done by the regulator and how much of this should be done by educating the public and letting individuals take a call?

The biggest challenge with annuity is that once you enter it you are stuck for a lifetime, whatever the rates may be. Whatever we see today are fixed rate annuities. There is no variable annuities in the market; it does not move along the interest rate scenario. Currently the annuity rates are varying between 5-6%, and this is normally for those asking for annuity and after death for the corpus to be refunded to the nominee. In Indian psyche, 90% people go for this – they feel that after they die it is their duty to give the corpus to close ones, regardless of whether they need it or not. They choose to trade off higher annuities for getting the money right after death. This is a big challenge in the system today.

So far as exits are concerned, the biggest complaint against NPS is that it discourages early access to the funds. But after considerable deliberation, we now allow three times partial withdrawal (25%) for the same reasons that EPFO allows – for construction of house, marriage of children, meeting medical costs, and so on. Beyond this, we do not allow withdrawal because as we have seen with EPFO, early access being freely accessible leads to depletion of corpus, culminating in a situation where a person gets no corpus on retirement. Since the system is for old age security, a substantial part of the corpus should be left at retirement.

The ideal view is that individuals have different instruments for different goals – NPS is not ideal for instance for medical costs or housing, but in a developing country there will be competing claims on limited amount of savings. In this context, what is the NPS doing for greater education of its customers?

PFRDA has training agencies in place and are involved in online training. For annuities, retirement and related matters, we have annuity literacy programs. For the last 2-2.5 years, we had around 30 sessions, with physical sessions before the pandemic; in Patna for instance, we had 300 people inside the auditorium and 500 outside. People have asked if they can contribute post-retirement. Now these sessions are conducted online, where 70% of the session is dedicated to audience questions. We also bring in pension annuity service providers, CRAs, fund managers.

Apart from this, we are trying to create an industry body. The NPS trust is already trying to do that, by bringing together fund managers, CRAs, POPs to create awareness.

We are trying to have a resource person -like concept that SEBI also had, who will go around and talk about pension in general.

I also believe that pension, health insurance and life insurance should be taken together. By contributing to NPS, the corpus may go up but the person and their family are not protected – hence, it has to be a combination of all these things. I strongly believe that different regulatory bodies like IRDA and us should work together towards a common forum through which we can educate people about these things.

During my 35 years in the insurance industry, pension has never been a top seller – ultimately if someone is really insisting on a pension will the insurance company sell it. No agent or advisor will actively talk about pension – but pension is one of the very important segments but everyone should be talking about.

There are changing demographics, people have longer lives and fewer babies. Is this the context for necessary focus on the issue of pensions? Has this transition happened?

The life expectancy at birth in India is close to 69 years now, and life expectancy at 60 is another 18-20 years; female longevity is 2 years more than male longevity. So we have to start quite early to think about longevity. We do a lot of industry sessions with CII, FICCI and so on – and we get questions, mostly from people in their 40s and 50s, about how much they need to accumulate in 10 years’ time for their post-60 life. In most situations we see that it is too late by the time they are starting; but we encourage them to start anyway. NPS in that sense is a very flexible system, where a person can contribute just Rs.1000 a year to keep the account alive, when they have restricted cash flows, and when they have higher cash flows they can contribute more and secure what you need at the end of your life. Regarding replacement rate, take for instance, IT graduates aged 25 years having a salary of Rs.30,000 a month with an annual increment of 8%, with inflation around 5% – and they depend only on the mandatory benefits of provident fund and gratuity – their replacement rate will be around 25% of their last earned salary. This cannot be adequate given the biggest cost incurred post-60, i.e., medical costs. Morbidity experience – the quality of life after 60 or 65 –  entails huge costs as the pandemic has shown us. This is why we need to be prepared since the longevity issue will catch up with us in a big way.

Now we have opened it up for the retail and corporate customers to continue after 60 years till the age of 75 years – they are free to close it any time in between and take their 60% money and go for annuitisation of 40%.

Regulatory capacity of PFRDA – staffing, technical expertise, etc.

The year 2021 was a turnaround year for the PFRDA since it became financially independent. We now run on regulatory fees and did not take a single budgetary grant to run our operations. This maintains our autonomy to a great extent. This helps us in recruiting people of our choice, improving our IT infrastructure and so on without depending on govt support. We have also set up a small fund to have our own office building.

We do not have any monetary constraint with regard to recruitment of capacity building and of experts. In our latest recruitment, we recruited actuaries for the first time, with the long term purpose of NPS being only one of many financial instrument with which the PFRDA will be working. Between 2004, when we were established, and now, NPS has changed its structure and shape quite a bit, since we added many flexibilities, but we need other kinds of products as well. The first thing we started, that was also given in the statute, is the Minimum Assured Returns Scheme (MARS). This again is very difficult in a market-linked scheme but we hope for the first basic product to be available in the next 6-8 months. It will look into many aspects – the moment you bring in the concept of assured returns in a market-linked scheme, we have to look at the solvency aspect of fund managers. Currently, I give them a fund and they give a certain kind of return net of their expenses. But if they are asked to give a certain kind of finite return regardless of market conditions, the concept of solvency comes into play – they have to be adequately capitalised. Once MARS is successfully implemented, we’ll be looking into other kinds of products. If the PFRDA amendment bill allows us to go into exit-related products, we’ll look into that – we have in mind a systematic withdrawal plan as an alternative to annuity.

Apart from actuaries, we are recruiting chartered accountants, cost accountants, company secretaries, economists, statisticians (for research), and so on. Our report from BCG, our consultant, looks into several aspects like operation of NPS trust, entire HR aspect of PFRDA and the areas that PFRDA should look into, kind of personnel PFRDA needs, and revamping of PFRDA’s IT infrastructure. This is a one-year project and these things are on the agenda.

Sources for principles, technical expertise and establishment of norms

We depend on three sources –

  • looking at other financial sector regulators and their best practices;
  • international practices – everything can’t be imported and immediately applied here, but we are working on that. For example, we are engaging with other countries on how they’ve made systematic withdrawal plans work; feedback from customers, intermediaries – we work with many CPSEs (central public sector enterprises) that are shifting their superannuation funds to us; here too we get feedback on what their employees want.

‘Know Your Regulator’: Mr Navreet Singh Kang, Chairperson of RERA, Punjab.

The State Capacity Initiative at the Centre for Policy Research (CPR)’s talk series titled: ‘Know Your Regulator’ is held in collaboration with the National Council of Applied Economic Research (NCAER), the Forum of Indian Regulators (FOIR) and the Indian Institute of Corporate Affairs (IICA). In this talk series, we are talking to chairpersons and members of India’s regulatory agencies about regulation of Indian markets and the economy.

As part of the series, Mr Navreet Singh Kang, Chairperson, Real Estate Regulatory Authority (RERA), Punjab, was in conversation with Dr KP Krishnan, IEPF Chair Professor in Regulatory Economics, National Council of Applied Economic Research (NCAER) and Ms Arkaja Singh, Fellow, State Capacity Initiative, Centre for Policy Research. The event was held on 25 November, 2021.

Here is a summary of the conversation:

Why was RERA setup?

RERA is a relatively recently established regulatory authority but one that has made a significant impact on market conditions in the sector it regulates. It is seen as having set the rules of the game in what is a volatile and risky business (real estate). RERA is also unique since it is only India that has a specific Real Estate Regulatory Authority, and this is a unique Indian experience.

RERA was setup for a few reasons: to promote transparency about the promoters’ credibility; to provide necessary approvals to the promoters to start a project and lastly, to provide quick resolution through an adjudicatory mechanism. Before RERA, customers had to go to the consumer forum or to the civil courts to complaint against the promoters. The level playing field was a bit distorted and the allottee was at the receiving end of these issues. That was the trigger for bringing in this Act so that there is a focussed, dedicated agency to monitor these things.

How is RERA structured?

The RERA Act says that there needs to be a chairperson and at least two full-time members. There is an Executive Director, who is typically a retired or a serving IAS officer and then there are four teams: Legal, Finance, IT and Registration and Regulation. RERA subsequently added a Town Planning division so that an officer can look at the promoters’ plans. The town planning officer is supposed to investigate the promoters’ floor plans and find out if the plans are within the remit of the law.

RERA has a separate authority for adjudication headed by an Adjudicating Officer who is usually a serving or retired district judge. There was some lack of clarity between the role of the Authority and the role of the Adjudicating Officer, but the Supreme Court has clarified that the Officer decides only the quantum of compensation and cannot make a substantial determination of the rights of the parties. Complaints made by the parties should therefore be heard by the Authority. The Authority must pass the order that the customer will be compensated for by the promoter and the Officer will decide on the compensation.

At RERA, there is a balance between retired people from government and other people without the baggage of government. In the managerial level, there are 25% of people who were formerly in government employment, the rest are from the private sector. Every recruitment is only through an open advertisement with an objectively defined criterion. Initial recruitment and screening are done by a committee of managers and the educational qualifications is laid down in our regulations. Attracting and retaining talent has not so far been a problem at RERA Punjab. Although the organisation does not offer permanent employment, if someone has been with RERA for a longer time, they are promoted and a higher level of renumeration is given to them. In the present structure, the possibility that a person in the RERA staff could become qualified to be a member or chairperson had not been envisaged. However, it is perhaps time to re-look at the promotion system from this perspective.

Although RERA is not very different from a government body in some ways, it is autonomous and more flexible. RERA is more informal and faster than a civil court, but these courts have greater powers of enforcement than a RERA. For orders that the Authority cannot execute, the matter is taken to the civil court. In terms of compliance, when RERA passes an order on development, the experience is that there is reasonable compliance on ground. Even overall compliance has been much better after the Act came out, especially so for new projects. There are legacy issues but hopefully that is changing.

RERA’s regulatory functions

The RERA Act says that promoters cannot develop their projects without registering with RERA. When a promoter registers with RERA, she must submit disclosure documents including status of approvals, title of the land or property, financial status etc. and RERA will upload these details on the website for the benefit of a prospective customer. Along with this, the promoter agrees to comply with certain terms and conditions. This perhaps encourages a certain degree of voluntary compliance.

Additionally, RERA is a dedicated agency that provides adjudicatory mechanism for grievances of allottees. RERA is not a consumer forum for the real estate sector, but the body is a regulator that is focussed on balanced development of this sector. RERA aims to regulate and promote and is keen to ensure that both the consumers and the promoters’ interests are balanced. The RERA Act discusses ways to reset terms between buyers and sellers. For this reason, when there is a delay in a project, RERA encourages the promoters to finish the project and the Authority also brings the buyers and builders together and negotiates between them. However, the Supreme Court passed a judgement that the allottee has the right to ask for refund of the money “on-demand”.[1] Genuine home buyers usually stick to a project despite delays but there are a group of buyers who will go by the market rate and would want to get out of the project. But when the market is looking up, buyers prefer to stick with the project.

Transparency and creating a credible platform are very important in RERA’s regulatory strategy but classic textbook perspective on regulatory authorities include elements of adjudicatory, executive, and legislative powers. Where does RERA fit into that?

RERAs have the authority to make regulations, but rulemaking power under the Act is with the state government. RERA has framed sets of regulations in the past and is hoping to come up with more in the future. These are not only specific to internal processes like staffing, recruitment procedures and administrative processes for the promoters and the consumers to raise queries, but they also include substantial regulations that have binding effect.

Executive powers of RERA include powers to enforce these regulations that RERA makes, and to enforce provisions of the Act and the Rules. Like all classic regulators, RERA has some elements of all three functions of the state – legislative, executive, adjudicatory powers – combined into one body. On a theoretical level, this is fundamentally violation of separation of powers.

However, in reality there is not much scope for conflict of interest as the rule-making function is mainly with the state government. RERA’s regulations only fill in the gap. For example, when a RERA receives a complaint, there are regulations on how the complaints should be handled. RERA only has limited powers of regulation. Recently, RERA’s regulations that said that a single member bench of the authority can hear complaints was quashed by the High Court. The Supreme Court later reversed this judgement, but this shows that RERA’s regulations are scrutinised. There are limits to the Authority’s powers.

There are three spheres in which RERA operates: a) contract enforcement where RERA looks at the builder-buyer contracts b) grievance redressal for customers in the real estate sector 3) regulation of activities in the urban sector. But all these three spheres also involve other players.Urban is a very tightly regulated sector and there are multiple authorities (like the Urban Development Authority) who regulate this sector. Contract enforcement also has its own legal machinery.  RERA exists because the existing machinery is not working properly. While playing a regulatory role, the other development authorities also play a promoter role. Their entire focus is not on regulation. But RERA helps in converging focus on this sector, and the Authority shares suggestions to the development authorities.

From seeking permission to build on a land to ensuring that the papers are in order, a builder must run around multiple authorities. Will RERA help consolidate all these into a single window?

RERA does not have the power to do these things, but the Authority has suggested to the government that there needs to be more cohesiveness to the entire project.

RERA has powers to levee fees and retains the fee for upkeep of RERA. In government, this is prohibited. The fundamental principle of government is that it cannot retain the fee and only legislature appropriates the budgets for government body. In RERA’s case, is there a potential conflict?

RERA’s budget comes from the state government and the fees that RERA collects from promoters or agents is enough to run the organisation. Unlike Income Tax, the Act itself says that the fee will be retained as part of Real Estate Regulatory Fund. It also says that that fund will be used for meeting the day-to-day expense of the Authority and for the Appellate tribunal headed by a retired High Court judge. However, this fee is set up the government, and not by RERA.

On the other hand, funds collected through penalties levied by RERA are not retained by RERA, but go to the consolidated fund of the state. In this way, there are some checks and balances built into the system.

You (Mr Kang) were the first chairperson of the Punjab’s Real Estate Authority. How did the setting up happen?

Punjab was the third state in the country to set up the Authority. We started from scratch where we walked into the office of Punjab Urban development authority, and we told them that they should help us since they have constituted us as an Authority. We got a pantry and a room with a veranda for starters. We also got a personal assistant. We have changed locations since. Finding a place for the office, recruiting staff, formalising regulations, seeking government approvals for the administrative regulations we made. All this was part of the process of setting up a new Authority.


The All India Forum of Real Estate Regulatory Body (AIFORERA) is a registered society, a central body with a Chairman, Vice President etc. It is also a central coordinating body. Mr Kang has been an office bearer at AIFORERA for the last two years. It provides a very useful platform for the state RERAs to meet and there are usually quarterly meetings. AIFORERA collates all the orders passed by other RERAs, the body takes up issues with the Ministries and the members also help in research activities. It helps to have a common voice. Currently, AIFORERA is headed by the chairperson of Tamil Nadu RERA.

Are there measures to assess RERA’s successes?

AIFORERA has been hosting a web series every month where various stake holders including private sector developers, financing institutions etc participate. They have agreed that this has made an impact. There is no quantification yet but qualitatively, we know that the Act has made a difference. If there were to be external evaluation, one would need data and all that data (complaints received, complaints resolved etc). is out there in the public domain. This data can help evaluate RERA’s successes as well.

Regulation and Public Interest

From its inception to setting up, RERA has been a unique regulatory authority in the real estate space. There are many nitty gritty challenges here and not many want to engage with the details to understand regulatory capacity. For example, in the areas around Chandigarh, the relationship between the builder and the landowner is quite transactional, unlike in the rural areas where people are closely attached to their land. But several rural landowners and farmers have themselves become promoters. The development of the sector is dependent on the market cycles.

Regulation is part economy, part society and part politics. Regulatory purpose is ultimately in the public interest. The regulatory challenges at different parts of the country are very different for each RERAs although all the RERAs come under the RERA Act. RERA is not a consumer forum, and the Authority’s interest is to promote a balanced development of the sector. If the Act is implemented properly, it will be a big step towards ensuring this development. RERA Punjab is focussed on improving capacity and improving interaction with its stakeholders.

[1] Newtech Promoters and Develpers Pvt Ltd VS State of UP & ORS etc.