RBI amendments in FEMA may spell more trouble for UPA

Senior CPI(M) leader Sitaram Yechury has blamed UPA government for the impasse in the Parliament saying it was not willing to have a vote on the FDI issue

New Delhi: The Union Government may face fresh trouble in Parliament over the recent amendments in Foreign Exchange Management Act (FEMA) by the Reserve Bank of India (RBI) to allow foreign direct investment (FDI) in multi-brand retail, with CPI(M) on Tuesday saying these have to be voted within a time-frame as laid down in law, reports PTI.


The statement by senior CPI(M) leader Sitaram Yechury came on the fourth day of disruption of Parliament over the FDI issue as he blamed UPA government for the impasse saying it was not willing to have a vote on the FDI issue.


Citing the FEMA, he said the amendments carried out to permit FDI in retail has to be tabled in Parliament for voting.


While the RBI notified the amendments on 30th October, "Section 48 of the FEMA Act says once these amendments are made, they have to be placed before both the Houses of the Parliament as soon as possible.


"The convention is that they should be placed before the 15th sitting of the first session after the amendments are made. That means by 13th December," Yechury told reporters.


Once the amendments are tabled, they have to be disposed of through voting within 30 days.

"Government cannot escape from bringing an amendment. We do not know why is it not agreeing to it (voting)," he said.


"So vote on this issue is inevitable. This is the recourse we will legally take as law makers," he said.


Yechury referred to a recent Supreme Court observation on a public interest litigation (PIL) that the amendments cannot be effected unless relevant sections of the FEMA Act are amended by Parliament. The petitioner had challenged the government's FDI policy and charged it with not following the due process of law.


The apex court, while fixing 22nd January as the next date of hearing, told the petitioner, "You are assuming that it (amendments) won't be placed before Parliament. Your assumption is ill-founded. We would know about it only after the Winter Session of Parliament.... Let's see whether it is placed before Parliament or not and then we will see.


"They are at their own peril. They can take risk. If their action does not stand in Parliament then they made the policy at their own peril," the bench further observed when the petitioner contended that the apex court should intervene as a Parliamentary committee has opposed FDI in retail.


On the issue of government's decision to transfer cash for benefits like pensions, scholarships and health-care, Yechury objected to the idea of cash transfer using the Aadhar platform, saying it would lead to reduction in subsidy and dismantling of the PDS system.


"Aadhaar has not yet received legal sanctions and it has not been approved by Parliament as yet. Ultimately, it will reduce subsidy and dismantle the public distribution system," he said.




5 years ago

Despite accepting the prima facie position that the government policy on FDI in retail didn’t have a legal sanction, Supreme Court had suggested a via media to temporarily regularize the position by making a request to RBI to amend Foreign Exchange Management Act through a notification. In the given situation this was the maximum the Apex court could do to salvage the situation for a government which was already in the dock on several issues. The fire-fighting team of UPA II should have taken the message of the Apex Court ruling in this case which in effect was an advice to follow the rules of game in whatever it wants to do. Always this helping hand of the apex court may not be available.
The Honourable court must have been sadly aware that it might sound a little odd to ask RBI to initiate an amendment to FEMA to regularize an executive decision of the GOI, which should have been issued after consultation with RBI. GOI should have taken serious note of the following observation of the Apex Court and reviewed its action on other issues like introduction of New Pension Scheme (NPS) where legislative sanction was pending:
“Can the policy decision be in conflict with express provisions made in the regulations? The regulations provide certain cap on FDI in various sectors. Will changing the limit of FDI not be in direct conflict? The government has to follow the legal process. These are matters which have huge impact.”
A reference to NPS is made here as ‘defined benefit pension scheme’ available to employees under existing Pension Regulations has been replaced by a ‘defined contribution pension scheme’ in respect of a section of employees without legislative sanction.
Enforcing measures which need legislative sanction through executive order and then going to appropriate authorities/parliament to regularize them where there seems to be no ‘emergent’ situation warranting such action sends out disturbing signals. The present impasse proves that in the absence of necessary numbers in both the houses, this method may become a rule rather than exception in days to come.

India's rating outlook stable; deficit, inflation problems: Moody's

Moody's said its Baa3 rating on India is constrained by the credit challenges posed by the country's poor social and physical infrastructure, high government deficit and debt ratios, recurrent inflationary pressures and an uncertain operating environment

New Delhi: Ratings agency Moody's on Tuesday said India's credit outlook is stable but cautioned that high fiscal deficit and persistent inflationary pressure would continue to pose challenge for the economy, reports PTI.
The rating agency said that the 'Baa3' sovereign rating is supported by credit strengths which include a large, diverse economy, strong GDP growth as well as savings, and investment rates.
"The rating is constrained by the credit challenges posed by India's poor social and physical infrastructure, high government deficit and debt ratios, recurrent inflationary pressures and an uncertain operating environment," Moody's said in its 'Credit Analysis on India'.
The rating has also been constrained due to the country's "complex regulatory environment" and a tendency towards inflation, it said, adding that fiscal position has long been a constraint for rating.
The government aims to restrict the fiscal deficit to 5.3% of GDP this fiscal. It has also announced a slew of measures to spur infrastructure development and liberalised foreign direct investment norms.
"However, given the delayed timing and still modest scope of these measure, growth may remain subdued in the near term amid continued domestic political uncertainty and a global slowdown," Moody's added.
Moody's said persistent domestic inflation and wide fiscal deficits precluded domestic policy loosening to combat the global growth downturn over the last year.
The agency said its stable outlook on India's rating is based on "our expectations that India's structural strengths -- a high household savings rate and relatively competitive private sector -- will ultimately raise the GDP growth rate from around 5.4% in FY 2013 to 6 per cent or higher in FY 2014..."


MFIs should follow respectful method of loan recovery: FM

Chidambaram said the micro-finance institutions should adopt responsible financing by way of transparency and interest rate rationalisation and must follow respectful recovery procedure

New Delhi: The micro-finance institutions (MFIs) need to have a code of conduct and must follow 'respectful' methods for recovery of loans, Finance Minister P Chidambaram said on Tuesday, reports PTI.
"...responsible financing by way of transparency, interest rate rationalisation, respectful recovery procedure must be followed by micro finance institutions," he said while listing the challenges faced by MFI industry.
He was speaking at the Microfinance India Summit 2012.
MFIs in some states especially Andhra Pradesh faced problems on account of use of strong arm tactics for recovery of loans. This also resulted in suicide by some borrowers.
Chidambaram also asked MFIs to verify data on borrowers with credit bureau to avoid multiple borrowing or over indebtedness.
"I will request the micro finance sector to adapt itself to the expectation of public at large, especially, with regard to their code of conduct," he said.
He further said the proposed Micro Finance Institutions (Development and Regulation) Bill, 2012 will provide adequate legislative framework for development and regulation of the sector.
"We are hopeful that the Bill will be cleared by the Standing Committee, then brought to Parliament for passage.
Once the bill is passed, I hope that it will provide an adequate legislative framework for the entire gamut of micro-finance services," he said.
The legislation seeks to empower the Reserve Bank of India (RBI) to regulate the sector and fix interest rates caps on loans provided by them.
The Bill, which was drafted in the backdrop of problems faced by borrowers of MFIs in Andhra Pradesh and other states, also seeks compulsory registration of MFIs with the RBI.
Micro finance -- the business of doling out small loans at usually high interest rates to poor people who are unable to access conventional lending instruments -- has come under intense regulatory scrutiny in the wake of an Act passed by the Andhra Pradesh government.


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