Regulating For Growth: From Regulatory Compliance To Regulatory Capital, A Socio- Legal Theory Of Principle-Based Financial Regulation And Developmental Outcomes In India

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Vipul V. Tamhane, B.Sc., MBA, LLM, Visiting Faculty, Department of Defence and Strategic Studies, Savitribai Phule Pune University, India; School of Law, Northumbria University, United Kingdom; Founder, Diplomacy Direct.ORCiD: 0009-0003-5687-8058

ABSTRACT

Financial-regulation scholarship has long treated compliance as a private cost, a deadweight burden that efficient regulation should minimise. This article inverts that assumption. It argues that in emerging economies financial regulation increasingly operates not as a constraint upon markets but as developmental infrastructure that produces them, and it introduces a socio-legal construct, Regulatory Capital, to name the institutional value that compliance generates. Drawing together five bodies of scholarship that have evolved in parallel (institutional economics, socio-legal theory, law and development, financial regulation, and public governance), the article advances a Developmental Regulatory Capital Theory (DRCT). It theorises the causal pathway through which legal design becomes institutional trust, trust becomes investment confidence, and investment confidence becomes inclusive sectoral growth. The theory is deliberately bidirectional: the same regulatory flexibility that accumulates developmental capital can, absent institutional quality, produce distorted capital, regulatory arbitrage, financialisation and consumer harm. India’s 2023-2026 regulatory reset, the consolidation of Reserve Bank Master Directions, the draft Securities Markets Code, an expanding self-regulatory-organisation ecosystem, and digital public infrastructure, supplies the empirical laboratory. Three case studies (the Securities Markets Code delegation controversy, the Jane Street enforcement action, and the Andhra Pradesh microfinance contraction) test the theory against its hardest cases. The article contributes a measurement framework, a five-fold typology and a set of testable propositions, offering a generalisable lens for comparative research across emerging markets.

Keywords: principle-based regulation; regulatory capital; developmental state; socio-legal theory; financial regulation; India; financialisation; RegTech.

167. REGULATING FOR GROWTH- FROM REGULATORY COMPLIANCE TO REGULATORY CAPITAL, A SOCIO-LEGA

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