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A K Bhattacharya: Reviewing FDI in retail

A K Bhattacharya/New Delhi 14 Nov 12 | 12:19 AM


If the government’s decision to allow foreign direct investment, or FDI, in multi-brand retail meets no legislative hurdle, it is not because Parliament has no powers to prevent the eventual entry of foreign companies in the domestic retail sector, with 51 per cent equity. If it so wishes, it can delay or stall FDI in the retail sector. Indeed, it can even modify the terms under which FDI is allowed in this sector.

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This may come as a surprise, because the general impression so far has been just the opposite. It has often been argued that since FDI rules for most sectors except a few like banking, insurance and pensions are enforced through an executive decision, the government can allow FDI in the retail sector simply by taking a Cabinet decision.

Note that if the Manmohan Singh government suspended the decision its Cabinet took in November 2011 to allow FDI in the multi-brand retail sector, it was largely because its main political ally at that time, Mamata Banerjee of the Trinamool Congress, had opposed the move. Not because it feared any legislative hurdle in Parliament. In September 2012, the government came under pressure to move ahead on reform and mustered the courage to allow FDI in multi-brand retail, even though the Trinamool Congress had serious reservations about the proposal.

Eventually, Ms Banerjee pulled out of the United Progressive Alliance (UPA), making public her differences with the government on the question of retail FDI and several other issues. The UPA secured support from other political parties to help it maintain a majority in the Lok Sabha, after the Trinamool Congress pulled out of the government. But remember that the new parties that gave their support to the UPA were ambivalent towards FDI in retail, and their endorsement of the move – if ever the proposal came to Parliament for a vote – was doubtful. Yet, the government went ahead with the decision to notify the liberalisation in FDI rules for the retail sector, as it feared no legislative hurdle to the move in Parliament.

That view is now being challenged. All changes in the FDI policy are effected through notifications issued under the Foreign Exchange Management Act, or Fema. These changes in Fema regulations are statutorily required to be tabled in Parliament, and they should remain open to scrutiny by members of Parliament for a period of 30 days. It is up to members of the two Houses to challenge their justifiability. Those who framed the rules for conducting parliamentary business deserve to be complimented for the manner in which they ensured the government’s accountability for its decisions.

The amended rules under any legislation, including the Fema rules allowing FDI in multi-brand retail, are also required to be automatically referred to the Committee on Subordinate Legislation of Parliament. It is of course left to this committee to determine if the changes in the rules amount to a violation of law, or if the government has overstepped its powers by bringing about changes and altered the spirit of the principal legislation. After completing this exercise, the committee gives its report to Parliament and the government can then be asked to bring about appropriate changes, if any. MPs can also raise such issues for debate under various rules — which may or may not require voting. So FDI in multi-brand retail could still be subjected to a debate in Parliament, and its legislative hurdles are not theoretically over.

Yet the irony is that the new Fema rules bringing in FDI in multi-brand retail may not be debated at all, as provided for in the rules of business in Parliament. This could be because the Committee on Subordinate Legislation may not find anything objectionable in the new rules. It is also possible that the members opposing the new Fema rules may fail to force a debate in Parliament under provisions that would necessarily require a vote at the end of the discussion. A simple debate, for instance under Rule 193, would be concluded without any voting, and the Fema rules may be accepted as notified by the Reserve Bank of India.

Thus, in spite of the parliamentary business framework providing for debate over changes in all legislative rules, the government can overcome all such hurdles with the help of some deft management of Parliament. That is perhaps why many MPs have often wondered whether all substantive provisions of a legislation should necessarily be made part of the main law, instead of being notified through rules.

In 2001-02, when the discussion over the proposed Fiscal Responsibility and Budget Management Act was under way, a proposal had been mooted to include the yearly targets of fiscal deficit and revenue deficit in the main legislation instead of their being notified through rules. Eventually, that proposal was dropped, thus allowing the government to revise its annual deficit targets, depending on the economic compulsions prevailing at a certain point in time.

The debate over the use or misuse of the provisions of rules issued under a main legislation is likely to surface once again if the Fema rules allowing FDI in multi-brand retail go through without any debate or discussion. The question is not whether FDI in multi-brand retail is desirable or not, but whether the rules of conducting business in Parliament and the manner of framing legislation need to be reviewed.

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