A salvage act

The Supreme Court has come to the rescue of the Central government which made a technical bungling while notifying the policy decision to permit foreign multi-brand retailers to hold up to 51 per cent of the total shareholding in retailing joint ventures in India. The court’s observation earlier this week that FDI permit lacked legal sanction as it had no legislative backing is appropriate in the circumstances. While not dismissing the policy entirely, the court has directed the RBI to amend the Foreign Exchange Amendment Act (FEMA) of 2000 to lend the proposed policy a modicum of credibility.

While the RBI has already set in motion the process of amending FEMA rules on ‘transfer or issue of security by persons (read investors) resident outside India,’ it will also be seized of the red herring in the entire tale – the Centre’s notification is still an executive order which has not received parliamentary approval. Besides, the notification on majority foreign holding in multi-brand retail ventures was apparently promulgated without due consultation by the government with the RBI. To its credit, the Supreme Court has not only refused to stay the decision, but tried to salvage the situation by recommending RBI intervention in what could have developed into an absurd jurisdictional squabble; more so, when abstruse government posturing on the FDI notification could attract more legal challenges ahead of the deliberations in Parliament.

It is mystifying how the Manmohan Singh government failed to follow the right procedure when the policy decision was under discussion for more than three years. Instead of deliberating on this important policy decision with its allies and the Opposition, the UPA government decided to flog the weary horses hauling its rickety reforms chariot without notice. Progressive reforms need rules to flourish and for investors to have faith that they won’t be derailed at some point of time. Majority stakeholdings in domestic retail ventures need wider deliberation at the institutional level, and legalising them should not come at the cost of undermining institutional integrity through executive muscle-flexing. Another area where legislative sanction was discounted in recent months pertains to introduction of the National Pension Scheme. In the FDI and NPS notifications, the unmaking of policy finds its apogee in the act of executive orders bypassing regularisation through due process of law.

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