For a country of its size and level of development, the regulatory system of Pakistan is underdeveloped. There may be a further setback if the process of devolution does not pay special attention to it, carefully distinguishing between the functions that can only be performed at the federal level from those that can be more efficiently carried out by the provinces.
This division of responsibilities will require an understanding of the initial impulses that led to the creation of the system in the first place and whether the system meets the current needs.
The system of regulation has evolved over time in response to several different compulsions. Citizenry demands, however, were seldom the main force behind regulatory changes and development. The reason for this is that Pakistan compared, say to India, took much longer to develop a representative system of government. Consequently, people’s needs were not fully reflected in the regulatory system. This is likely to change with the devolution of authority to the province under the 18th amendment.
Even at the risk of some simplification, it will be useful to identify the main pressures that have produced the current system of regulation before discussing how the system could be strained by devolution. The regulatory system can be divided into several parts. Each of these was put in place in response to different sets of imperatives.
The oldest regulatory system is managed by the provinces and regulates both the sector of agriculture as well as commerce involving agricultural produce. Laws such as the various agricultural marketing acts in the provinces are based on the 1929 legislation put on the books by the British colonial administration.
The main purpose behind them was to protect the Muslim peasantry from what were seen as the predatory behaviour of Hindu money lenders and middle-men. That reason is long gone – the non-Muslim operators in the sector of agriculture left Pakistan for India soon after the British decided to partition the sub-continent on the basis of religion – but the acts continue to regulate agricultural commerce in a way that has seriously inhibited the development of free markets.
Regulatory systems, if not kept under constant review, can attract vested interests as well rent seeking by the regulating agencies. The passage of the 18th amendment has provided an opportunity for that review.
The second set of regulations also concern the sector of agriculture. These date back to the mid-1950s when Pakistan for the first time became a food deficit country. The government stepped in and set up mechanisms to regulate commerce in food grains and cash crops. The price of some of the commodities deemed to be essential – in particular wheat – were regulated indirectly by fixing the price at which government would acquire the surpluses for sale by the farmers.
Initially, capacity for storing wheat procured by the government was created. Later the government established its monopoly over international commerce in wheat and rice.
Trading Corporation of Pakistan is in international trade. The system has continued with the government influencing production and trade in wheat, the country’s most important crop. It announces the procurement price of wheat at the beginning of the growing season.
Banking regulation and regulation of the non-banking sector constitute the third pillar of the regulatory system. While the responsibility for overseeing commercial banks rests with the State Bank of Pakistan, non-bank institutions are regulated by a number of agencies with varying degrees of autonomy.
The regulatory system went through enormous expansion when the government headed by Prime Minister Zulfikar Ali Bhutto (1971-77) decided to expropriate large private businesses in the sectors of industry, finance and commerce.
Under Bhutto, the government also decided to improve the working conditions of the labour employed in the formal sectors of the economy. This was to be done in part by instituting laws pertaining to hiring and firing of workers, minimum wages and old-age pensions, and health care.
The pension systems to which both the workers and the employers contribute have accumulated large financial assets which are tapped by the federal government for the purpose of raising general revenue. The ownership of these funds will be a contentious issue as the process of devolution proceeds.
A number of laws concerning labour welfare have accumulated on the books. The attempt to consolidate them into one piece of legislation has not advanced because of the indifference of the provinces. This is one area where devolution might bring rationality into governance but there is also the danger that it might lead to fragmenting the labour market with adverse economic consequences.
The corporate sector was poorly regulated for decades. It was only in the early 1990s with the privatisation of the industrial and other assets nationalised in the 1970s, that the need arose for regulating enterprises in the private sector.
In this context, two agencies were established. The Security and Exchange Commission, established in 1997, regulates the entry and exit of private enterprises from the economic system while the Competition Commission, as the name suggests, ensures that companies operate in a competitive environment. These regulating agencies will continue to function at the federal level even after the process of devolution has worked its course.
In the public utilities sector, it is only for the enterprises involved in various aspects of electricity – generation, transmission and distribution – that a regulatory framework has been established. However, since these enterprises remain in public domain, the state continues to intervene.
Initially, the National Electric Power Regulatory Authority, established as a part of the reform effort launched in 1992, was mandated, among other things, to fix tariffs for various types of consumers. It has been only partially successful in this area. The government continues to intervene, one reason why what is called “circular debt” has become such a major fiscal problem.
It is in the area of delivery of social services that the regulatory system will come under stress as result of devolution. There is already considerable uncertainty as to the locus of responsibility with respect to the functions the federal government has performed in the sectors of education and health. The Higher Education Commission has the responsibility for developing curriculums for institutions operating in the sector.
The decision by the Implementation Commission to devolve the HEC has been challenged in the Supreme Court which has instructed that the process initiated as a part of the devolution should be put on hold pending further review. Similarly the decision to devolve the ministry of health may affect the various drug laws on the books as well as the country’s international obligations for controlling the spread of various diseases.
Pakistan is also committed to the various Millennium Development Goals. It is not clear how this commitment will be met if all the functions of the health ministry are devolved to the provinces. For the moment the provinces are reviewing the various laws and regulations for which they will have the responsibility under the 18th amendment.
Environment is another area that is likely to be affected by devolution. Although there is a ministry responsible for the sector and although there are laws and regulations administered by the provinces to regulate the environmental aspects of industrial production and commercial operations, protection of environment has not received the attention it deserves. There is a real danger that this function of the government may suffer from further neglect as result of devolution.
It would appear that the impact on the nascent regulatory system of devolution has not been fully appreciated by those who are responsible for implementing the process. One likely consequence is that in some areas, particularly in the area of delivery of social services, there may be some set back as the provinces begin to reflect on their own regulatory requirements in developing their system. In several cases, federal competence and ability must be maintained to ensure that there is a regulatory framework to enforce standards across the country.