Business Standard

Somasekhar Sundaresan: FDI vote underlines regulatory power

Parliament delegates power to regulatory authorities Similar interest is not seen in other matters of governance that have been delegated

Somasekhar Sundaresan 

The Union Government has pulled it off – a vote on the proposal to introduce foreign direct investment (FDI) into multi-brand retailing in India. Each House of Parliament has voted in favour of the proposal. The government feels like a winner – it has piloted its proposal through Parliament successfully. The opposition parties that opposed it feel like a winner – they were able to make noise publicly and project an image of having done their best. They are after all, not the ruling coalition. Those who walked out of Parliament, or found other means of hedging their position found their own comfort zones in which they could justify their actions to themselves and to their constituencies.

This, is the mela of democracy. Discourse, with varying degrees of maturity and nuance, takes place. Various political parties, having won a mandate to participate in law-making in varying roles, do so. An eventual outcome may not be satisfactory to all concerned, but there is an outcome involving participation of all those with a mandate to rule. This column is not about FDI in retail. It is about what the vote on FDI in retail highlighted to us as a Republic working under the rule of law founded in the Constitution of India.

Permission for a certain level of FDI in retailing, or for that matter, in any sector, is essentially brought into effect by amending a schedule to regulations made under the Foreign Exchange Management Act (FEMA). Parliament enacted FEMA, and authorised the government to make rules, and the Reserve Bank of India to make regulations, to implement the law. When government changes its policy on introducing FDI, the RBI amends the regulations to implement the policy.

It is open to Parliament to empower a regulatory authority to make regulations to implement any legislation made by Parliament. Such regulations are “subordinate legislation” and have to conform to the Act of Parliament that gave the authority to make the law. Any such regulation made, is required to be tabled in Parliament for a period of 30 days. Parliament has a right to review such regulation and debate the wisdom of the measures adopted in the regulations. It was the regulations under FEMA that was voted on in relation to FDI in retail.

Upon review, if Parliament builds consensus to reject the measure or modify the measure, the regulation would change prospectively from the point at which the rejection or modification is passed by Parliament. If there is no action from Parliament, the regulations take effect – after all, it was Parliament that had delegated power to the regulatory authority to make regulations in the first place. Parliament has its own rules on the conduct of such a review. A proposal to reject or modify the regulation may be debated without a vote, or may be debated and put to vote. The political ruckus about FDI in retail was primarily about whether the proposal should be put to vote, which it eventually was, with the regulation surviving intact.

Every regulation made by a regulator has to undergo the same drill. It is another matter that Members of Parliament do not take similar interest in other matters of governance that they have delegated to various regulatory authorities. The intervention by Parliament, in practice, too ought to be more an exception than a rule. If Parliament desired to have a say in every single regulation constituting delegated legislation, it would not have delegated the power to make regulations in the first place. However, every single regulation made by regulatory authorities ought to have the capacity to withstand such scrutiny.

Such a nuanced check and balance is an important part of the texture of the fabric of rule of law. To hold the office of a Member of Parliament one has to be elected by the people of the Republic. To hold office in a regulatory authority, the subordinate legislation-maker does not have to win any election. The laws made by him are subject to such review by those who have the mandate of the people to govern the nation.

Even after such scrutiny, laws are subject to judicial review from the standpoint of constitutional validity. Just because the process of law-making has been followed, a regulation that is violative of the Indian Constitution cannot become law. Such scrutiny is independent of the government and of Parliament. Indeed, as rightly underlined by a senior high court judge at a recent seminar on governance, the only constituency of a high court judge, should be the Constitution of India.

The reality is, both Parliament and the courts, are usually reluctant to strike down a regulation as being unconstitutional. The presumption has to be one of constitutional validity rather than the lack of it – else, it would be impossible to govern the section of society the regulator has been asked to regulate. This is why, when a regulator passes off a regulatory measure as a “circular” or a letter purportedly written using powers under his statute, he is contravening such a precious and important constitutional check and balance.

Regulators ought to be mindful that the regulations they write should have the capacity to withstand such scrutiny. Probity in regulatory administration demands that they do not write regulations in the garb of correspondence or circulars invoking their powers. Public consultation and engagement with society on a proposed law is critical to all stakeholders to feel involved. Regulators should clearly state the purpose of the regulations, to help society comply. Motherhood statements should be abandoned in favour of standing up and declaring what they specifically stand for. Finally, after making regulations, continued engagement with society is critical. Else they will never know how they have fared.


(The author is a partner of JSA, Advocates & Solicitors.  The views expressed here are his own)  

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First Published: Mon, December 10 2012. 00:00 IST