The year 1991 has gone down in history as the kick-start of economic reforms in India, and not as the year in which the nation suffered the worst balance-of-payment crisis. In fact, the reforms were initiated as part of a bailout deal with the International Monetary Fund (IMF). The scrapping of trade barriers, the dismantling of the licensing regime were only a few of the liberalisation measures; Disinvestment of public sector companies was taken up on a war footing as IMF indicated this had to be priority. One recalls the Supreme Court’s approach when the nationalisation of Balco was challenged before the Supreme Court by the workers. The Court, relying on the ratio of the precedent in the case Delhi Science Forum & Others vs Union of India, wherein the contention was that telecom as a sensitive service should remain within the exclusive domain and control of the central government, dismissed the case in hand on the ground that courts should not act as approving authorities in respect of public projects and policies initiated by the government.
This reminiscence is more of self indulgence as the current scenario is very similar to the post-1991 years and the development that the reforms generated by ushering in new technologies, resources, and rejuvenating a nation that had pledged gold to secure its debts.
The last week has demonstrated that the Government is in a similar mode.
As things stand, a political ally has withdrawn support from the Government and is clamouring for a vote of no confidence. The President is not obliged to entertain this request at this point of time, unless the Government’s stability is manifestly disrupted and is free to defer this till the Parliament’s winter session. In the meanwhile, the Government has issued the press notes in introducing the reforms, which they are entitled to do under law, as there are no laws have to be enacted by the Parliament for these measures at this point of time.
Therefore, short of a court order, which is unlikely, there is no impediment to the policies from being implemented, as there is no requirement for any new laws to be enacted at this point of time. There is no coercion – each state is free to adopt or disregard the policy changes. Nine states and the Union territories have supported and accepted the policy. Others may do still do so.
Single-brand retail had already been notified but some of the requirements, particularly relating to ownership and sourcing were creating impediments, hence there were few takers. It has been clarified that the only one non-resident entity, whether the owner of the brand or otherwise can undertake this activity, being duly authorised. The compliances will be of the Indian company – brand owner or licensee only. This ring fencing mechanism will certainly allay brand protection concerns. The sourcing of 30 per cent of the value of the raw material is to be done from India, preferably from MSMES, village, cottage industries, etc, with a rider that procurement requirement would have to be met in the first instance as an average of five years total value of the goods purchased, beginning April 1 of the year during which the first tranche of FDI is received. Thereafter, it would have to be met on an annual basis. The qualification of ‘preferably’ leaves room for interpretation especially in cases of non availability.
Similar provisions apply to multi-brand, except that the provider will have to meet investment criteria of $1 million in plant and machinery. The exception for the reportedly ‘highly specialised’ or ‘high technology’ is missing, but it may be inferred that the language of paragraph 6.2.16.4, of press note 4 of 2012 where it refers to enhancing competitiveness of Indian enterprises through access to global designs, technologies and management practices, address this issue rather clumsily. Incidentally, the SME provider will not be permitted to outgrow, the qualifying criteria, otherwise it will disqualify itself. A somewhat strange and unrealistic approach!
It's the states that allow FDI in multi-brand retail or for that matter of fact, single-brand retail that have to take several initiatives, which include having an adequate legal and adequate regulatory structure in place. Infrastructure needs to be boosted. retail outlets will have to be located at least 10 km around the municipal/urban agglomeration limits of cities having more than one million populations. Some cities may have proper zoning, demarcation and user requirements in place; this is one of the first initiatives the states have to take. Proper infrastructure to provide ease of access in terms of the roads, freeways, parking and similar amenities have to be undertaken, which may involve cases of eminent domain. Many states have land-ceiling laws which may require repeal. The press release of mid-September addresses some of these issues but not in entirety, there has to be a proper policy document to address these and the preparation should be left to the state governments. The main state laws are the Shops & Establishments Act, the various building and construction regulations and by-laws, rent laws, which fall under municipal laws, environmental laws, and food laws.
Most states have enacted Agricultural Produce Marketing (Regulation) Acts and these may need to be revisited. The contentious issue from the legal and regulatory perspective is that the Land Acquisition Act is yet to be passed. The Government will have to address this one in going forward.
Kumkum Sen is a partner at Bharucha & Partners Delhi Office and can be reached at kumkum.sen@bharucha.in
