Policy has to meet constitutional norms, says Bench firing volley of questions

“Have you got any Foreign Direct Investment or it is just a political gimmick? Has the FDI policy in multibrand retail sector announced by the Centre in October 2012 brought some fruits” the Supreme Court asked Attorney-General G.E. Vahanvati on Tuesday.

A Bench of Justices R.M. Lodha and S.J. Mukhopadaya told him: “We don’t want to interfere and substitute government policy decisions with judicial decisions but the policy has to meet the constitutional requirement. Our exercise is limited to see whether the policy meets the constitutional principle.”

As per the gazette notification amending the Foreign Exchange Management (Transfer or Issue of Security by a Person, Resident outside India) Regulations, 2000, 100% FDI is permitted in single brand product retailing and a 51% cap has been imposed on equity in multibrand retail.

The Bench was hearing a public interest litigation petition filed by advocate Manohar Lal Sharma, who challenged the Centre’s notification allowing FDI in retail. He pointed out that the amendments would have to be placed before Parliament for its approval as per Sections 47 and 48 of the FEMA.

During the resumed hearing, the AG told the Bench that Parliament had rejected two negative resolutions on FDI in the last session and nothing survived in the petition. At this juncture, Justice Mukhopadaya asked him whether FDI would have an impact on small traders and whether it would affect free trade. The AG said: “FDI is a policy decision and every aspect has been gone into by Parliament, where the issue was discussed in detail and put to vote.”

Justice Lodha asked: “What are the checks you have put in place to ensure that there are no restrictions on free trade?”

Serious apprehensions

Justice Mukhopadaya told the AG: “There are serious apprehensions in the minds of small traders that FDI will affect their trade. They feel FDI is a serious threat to their business. Policy is one thing. Apprehension is another issue. We have seen [that] when big traders reduce prices, small traders are eliminated from market. [But] after some time they increase the prices. If big companies adopt unfair trade practices and bring down the prices, what will happen to small traders? What has the government done to protect the interests of small traders?”

Justice Lodha asked: “You announced the policy in October 2012. Have you got any FDI? Have you brought FDI as a political gimmick or has it brought some fruits?”

‘Serious reform, not a gimmick’

The AG said: “It is not a political gimmick but part of serious reforms. It is a matter of government policy and now applications are coming for investment:”

Justice Mukhopadaya told the AG: “Reforms should not close the door to small traders. Consumers should have a choice and you [government] must ensure that. The apprehension is their right will be taken away. If the retailers are, there consumers will have a choice; if they are out, consumers don’t have a choice.”

Justice Lodha said: “Your policy cannot be sacrosanct. Reforms can go on but that should not close the doors to small traders. We are not policymakers, but a policy has to be within the constitutional parameters.”

The Bench then directed the Centre to file an affidavit in three weeks, indicating the steps it had taken to protect small retailers. The petitioner will have two weeks to file his rejoinder thereafter.