Rishika Rangarajan

Financial Autonomy of Independent Regulatory Authorities, Part 1: Analysing the Legal Framework

According to the audit report released by the Comptroller and Auditor General of India (CAG) for FY 2016-17, 14 regulators and autonomous bodies had retained surplus funds worth over Rs 6,000 crore ‘outside the government accounts’. The largest share was held by the Securities and Exchange Board of India (SEBI) in the form of fee charges, unspent grants, interest and other receipts. In light of this, the CAG asserted that public money should be kept in the public account, i.e., the Consolidated Fund of India (CFI), to ensure parliamentary oversight and accountability.

The CFI holds all revenues, taxes and duties and other such money received by the Government of India (GoI). It is also the account from which government expenses are met, including the funding of the judiciary, ministries and departments of the GoI, and the parliament. Independent regulatory authorities such as SEBI, Competition Commission of India (CCI) and Telecom Regulatory Authority of India (TRAI) also receive money from the CFI in the form of ‘grants-in-aid’.

After the release of the report, the GoI pushed SEBI and other regulators to transfer their surplus funds to the CFI. Regulators resisted this move, arguing that government control over their finances would undermine their autonomy. In 2019, the tussle between SEBI and the GoI prompted an amendment to the SEBI Act, 1992, mandating the market regulator to transfer 75% of its surplus funds to the CFI.

The conflict between regulatory bodies and the GoI is rooted in an accountability versus autonomy debate. The independence of regulators across jurisdictions is a key principle governing their design and functioning. Funding is a vital aspect of this independence, directly tied to regulators’ ability to effectively implement their mandates. How, then, do we maintain the autonomy of regulatory authorities while also ensuring sufficient oversight over their functioning?

This questions creeps into many aspects of their design, including how they are financed. According to some, regulators should move towards self-funded models, removing all reliance on the government for money. This article examines the existing legal framework that governs the funding, expenditure and audit of regulatory authorities.1 Given their growing importance, regulators need strong frameworks to govern various aspects of their functioning, including financing. Regulatory budgeting should be designed keeping in mind factors such as adequacy of resources, accountability, independence, nature of the sector being regulated, and the functions of the regulator, among others. By assessing whether the current legal framework for financing regulators enables their effective and autonomous functioning, we can begin to address some of the more complex questions regarding the funding of regulatory authorities.

Legal framework governing the financing of regulators

The financial activity of regulators is mainly governed by three legal instruments:

  1. The Constitution of India, which sets down the basis for financing all state institutions, local bodies and autonomous/statutory bodies;
  2. The parent statute under which each regulator is established, which puts in place details of income sources, expense heads and auditing processes; and
  3. The General Financial Rules, 2017, which include executive instructions applicable to autonomous and statutory authorities.

1. Constitution of India

Article 266 of the Indian Constitution constitutes the Consolidated Fund of India as the public account that holds ‘all other public moneys received by or on behalf of the Government of India or the Government of a State’, in addition to revenues through taxes, duties, etc. Articles 112, 113 and 114 under the chapter, ‘Procedure on Financial Matters’, lay down the procedures for the submission of the annual financial statement by the GoI (the Annual Budget), the submission of estimates and demands for grants, and the passing of Appropriation Bills before any withdrawal from the public account. To that effect, any expenses or grants allocated towards regulatory authorities must follow a legislation approved by the Parliament along with the submission of detailed estimates of expenses.

2. Parent statutes of regulators

The parent statutes under which regulatory bodies are established provide a broad framework for where they can source funds, what they can spend on, and how they are audited. These are accompanied by draft internal rules for purposes including determining terms of salaries and allowances, the format for annual accounts and the process of submission of returns.

  1. Income sources: Typically, the parent statute creates a separate account for a regulator’s funds.2 The central/state government is required to set aside an amount for regulators after due appropriation, which is then transferred to this account. In addition to government grants, regulators may source money through fees and subscriptions. Fees and charges for licenses, renewal and application fees, etc., constitute a key source of income for some regulators.
  2. Expenses: The incomes of regulators can be used for salaries, allowances and other expenses ‘for discharge of functions’ or ‘for objects of the Act’ as provided in their respective parent statutes. The statutes do not further specify how and where regulators can spend their funds.
  3. Auditing procedure: In order to ensure accountability, each regulator has to submit statements and returns to the central government, and an annual audit report by the CAG is to be laid before the Parliament. TRAI, CCI and the Pension Fund Regulatory and Development Authority (PFRDA) are additionally required to furnish statements/returns related to any promotion or developmental activity undertaken by them.

3. General Financial Rules, 2017

The General Financial Rules, 2017 (GFR) issued by the Ministry of Finance mention the ‘executive instructions to be observed by all Departments and Organizations under the Government and specified Bodies’. Rules 229 and 230 of Chapter 9 provide principles and general instructions for the setting up of ‘Autonomous Organisations’, which include:

  1. Factors to consider before setting up new Autonomous Organisations;
  2. Peer review processes to continuously monitor performances including reexamining whether the organisation is still required; and
  3. Encouragement to Autonomous Organisations to maximize generation and eventually, to attain self-sufficiency.

Whose money is it anyway?

Regulatory authorities are a relatively recent phenomenon in India, and it is not clear whether their funds belong to the CFI and thereby come under the ambit of the GoI. The GoI contends that regulators are not exempt from the constitutional framework, citing the examples of the judiciary and executive, which also receive funds from the public account while remaining independent. Some regulators argue that they do not fall under the ambit of these provisions. For instance, in 2015, the Central Electricity Regulatory Commission (CERC), in a letter addressed to the Ministry of Power, stated that its inception as a ‘body corporate’ and a separate legal entity implied that the regulator was not an agent of the Government, and therefore, that its funds did not fall under government control or oversight.

Committee reports discussing the Insolvency and Bankruptcy Board of India (IBBI) and CCI have emphasised on the need for regulators to eventually move towards self-reliance. They highlight the need for financial independence to ensure flexibility and autonomy over resource allocation. At present, although parent statutes allow regulators to raise money, they do not specify who it belongs to in the legal sense—the GoI or the regulator. On the one hand, the Constitution of India requires all public money received by, or on behalf of, the central or state government, to be entitled to the public account of India or the respective state. On the other, the General Financial Rules, 2017, distinguish autonomous institutions from other state institutions, encouraging them to move towards a self-funded model. In 2018, SEBI referred to the GFR to reinforce its stance that, as an independent regulator, it was entitled to its own surplus funds. The current legal framework fails to provide clarity on these questions.

Deliberate thought needs to go into whether it is feasible for all regulators to be self-funded and, if not, how they can maintain their independence while relying on funds from the state. Funding models reliant on private entities are also not necessarily free of political manipulation or industry capture. This begs the broader question of whether it is fair to link regulators’ autonomy to their ability to raise resources.

Part two of this blog will compare the income and expenditure accounts of three regulators between 2015 and 2020 to shed light on the various sources of funding that regulators rely on, and how they spend their funds.


The author would like to thank KP Krishnan for his valuable insights on this topic.


  1. This analysis considers the statutes of the following regulators:  Securities & Exchange Board of India, Competition Commission of India, Food Safety and Standards Authority of India, Telecom Regulatory Authority of India, Insurance Regulatory Development Authority, and Pension Fund Regulatory and Development Authority of India.
  2. Barring SEBI and FSSAI, all regulators considered have a separate fund constituted under their parent Acts.

About the Author

Rishika Rangarajan is a Research Fellow at NLSIU where she is part of the Regulatory Governance Project. Her current research aims to understand the increasing role of regulation and its implications in the Indian context.