Should FEMA be amended?

Last Updated: Mon, Dec 03, 2012 04:11 hrs

On the heels of the diesel subsidy reduction, on September 20, 2012, the central government sprang into action with the revival of their reform agenda. A slew of key reforms were unleashed in retail, aviation and power sectors, with the opening up of the multibrand retail sector as the starred item. On this issue, there was expectedly great uproar, of how the East India Company came as an investor and stayed on to rule. While India’s credit ratings went up, foreign investors evinced interest, but with caution. In the meanwhile the government proceeded to issue the Press Notes by way of delegated legislation under Article 73 of the Indian Constitution which empowers the Union to make laws on all matters on which the Parliament is empowered to. Political opponents and activists voiced their protests, as did a political ally in withdrawing its support to the central government.

In a parallel development, no sooner had the DIPP Press Notes 4 to 8 been released, a Delhi Lawyer lodged a PIL in the Indian Supreme Court challenging these Press Notes as being ultra vires in overreaching the RBI, as the relevant provisions of (FEMA) had not been amended. The court was apprised by the attorney general that on the next working day itself, RBI had issued a notification pursuant to DIPP’s action, permitting deletion of the item of multibrand retail from Schedule ‘A’ of FEMA and providing for amendments to provide for the sectoral holding. On the returnable date i.e. November 11, 2012, the Attorney General, informed the Court that the amendments to the relevant regulations had been carried out. The petitioner expressed certain apprehensions as to whether the amendments would be placed before the Parliament was doubtful. The court dismissed his apprehensions as unfounded. There is nothing on record to suggest that the FIPB should not proceed with any application, though the media has reported this.

Meanwhile, Chinese whispers were doing the rounds that Walmart, Carrefour, and Tesco were putting final touches to their India business plans, but clearly the underlying concerns remained. With the festive season over, it was time for Parliament to reassemble for the winter session.

Expectedly, on the first day of the winter Session, the former ally party moved a no confidence motion against the Government, which was rejected by the Speaker on account of paucity of numbers. Opposition parties were demanding a discussion under Rule 184 of the Constitution read with Rule 191 of the Rules of Procedure and Conduct of Business in the Lok Sabha (“Rules”) i.e. discussions with voting.

The ruling party initially took a hard line agreeable to a discussion under Rule 193 of the Rules, i.e. not permitting voting. Consequently, the Lok Sabha was non-functional for three consecutive days and the possibility that some non controversial Bills, which had been long languishing in the wings, particularly the Companies Bill, the Banking Laws Amendment Bill, the Money Laundering Act, seemed to be doomed.

But on the 29 of November, the impasse was averted with the Ruling Party agreeing to discussions with voting on multinbrand Retail under Rule 184. Also the Money Laundering Bill was passed.

The discussion and voting on the Policy is a political resolution and the answer lies in the numbers. In the meanwhile the BJP and the Communist Party have joined hands on the issue of the FEMA amendment under Regulations 47 and 48, which after being passed has to be placed before the House before the 15th day of the Session in a case where the amendment is made during a time that Parliament is not in session and, if not possible in a single session, in two or more successive ones.

Section 48 provides that if Parliament makes any changes in annulment of a notification, the same will be without prejudice to anything previously done under that rule or regulation.

This clearly implies that no changes to approvals under the Regulations already granted can be reversed.

The Opposition will try and fault this one, because there are interpretational issues involved, and a pending Court case.

But it is doubtful that the entire opposition in both Houses will agree that the provision in regarding existing approvals in Section 48 being reversed.

There are too many vested interests even in the states that are opposing multibrand retail but have substantial FDI. Gujarat is the first that comes to one’s mind.

In my opinion, the courts are likely to decline to interfere. So the week ahead promises to be an interesting one.

Kumkum Sen is a partner at Bharucha & Partners Delhi Office and can be reached at

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