State governments have the right to revoke approval to the foreign direct investment (FDI) policy in multibrand retail (MBRT) even as Minister of Commerce and Industry Anand Sharma has objected to the stance taken by the Rajasthan government to withdraw decision of the previous state government in this regard as "bad in law."
Although the policy of allowing FDI up to 51% in MBRT was formulated in such a way that the decision to execute it will depend on the state governments, there is no provision to undo the move if a state government decides to repeal it.
The decision of the previous state government concerned can be annulled by the new state government if it wants to do so, sources in the ministry told Business Standard.
Also, another significant point that has gone completely unnoticed in the entire saga is that the proposed amendments to the Foreign Exchange Management Act (FEMA) regulations by the Reserve Bank of India (RBI) still faces a technical issue in the Rajya Sabha. Hence, technically the FDI policy in MBRT does not enjoy legal sanction as yet.
While the UPA government had passed the FEMA amendments in the Rajya Sabha, it has not gone through voting on amendments proposed by CPI (M) member Sitaram Yechury. According to a procedure, if any MP raises a question, the matter has to be discussed and put to vote within 60 sittings or two sessions.
The monsoon session, which had passed FEMA amendments, is over, but the winter session has only gone in a break and has not ended sine die. When Parliament meets again it is technically an extension of the winter session itself. If the amendment is not passed it will lapse.
"However, for passing it, a discussion and vote on my counter point will have to take place too," Yechury had said in Nagpur.
Passage of change in FEMA was technical in nature. The Reserve Bank of India (RBI), which monitors the law, notifies the amendment to delete retail sector from the list of FDI prohibited list.
When the policy was rolled out in September 2012, it was told that the final decision to allow FDI in MBRT will depend on the state government concerned. It was framed as a state-enabling policy.
The FDI policy on MBRT clearly states that the policy "is an enabling policy only and the state governments / union territories would be free to take their own decisions in regard to implementation of the policy.
Therefore, retail sales outlets may be set up in those states, union territories which have agreed, or agree in future, to allow FDI in MBRT under this policy."
So far, twelve states and union territories have agreed to implement the policy, a majority of which is under Congress rule like Andhra Pradesh, Assam, Haryana, Jammu and Kashmir, Manipur, Uttarakhand, Maharashtra, and Karnataka among others.
However, in some states like Delhi and Rajasthan, where the Congress was overthrown from power, the new governments reversed the policy.
"This is unprecedented, where states have the authority to play a role in a national policy. Surprisingly, there is never a problem when an Indian retailer opens stores. There has never been a case where a policy of the central government can be decided by state governments. While retail is a state subject, FDI is not," said Arvind Singhal, chairman, Technopak.
The ministry of commerce and industry has sought legal opinion on the matter.
In the case of Delhi it was Aam Admi Party (AAP) that decided to go against the decision of the previous government – Congress – to allow FDI in retail. Likewise, in Rajasthan it was BJP that overturned the decision of its previous government, again Congress, to not allow foreign retailers on their soil.
Some of the states that are headed for elections in a few months are Andhra Pradesh, Haryana and Maharashtra-- all ruled by the Congress or coalition led by the party.
"Delhi and Rajasthan are already included as FDI approved states. And FDI is a central subject. Thus, the FDI policy and FEMA will need to be amended to remove these states from the list," said Goldie Dhama, associate director, PricewaterhouseCoopers.
So far, only UK-based Tesco's proposal to invest in the sector has been cleared by the central government.
States which have approved permitting up to 51% FDI in MBRT:
* Andhra Pradesh, Assam, Haryana, Himachal Pradesh, Jammu & Kashmir, Maharashtra, Manipur, and Uttarakhand.
UTs which have done so:
* Daman & Diu and Dadra and Nagar Haveli.
States which revoked earlier approval:
* Delhi under Aam Aadmi Party government and Rajasthan under the Bharatiya Janata Party
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