Losing Rajya Sabha vote not to impact FDI fate: Expert

The UPA government received a much needed boost after winning the FDI in multi-brand retail vote in the Lok Sabha on Wednesday. However, it still has to receive a nod from the Rajya Sabha before being implemented.

Corporate tax lawyer, HP Ranina told CNBC-TV18 the loss of vote in the Rajya Sabha will have no impact on the fate of the FDI proposal. He reminded that amendments to an act need to be passed by the parliament and FDI in retail is only an enabling policy.

Also read:Govt has exhausted itself in retail FDI debate: Sardesai

Moreover, investments from multinationals can only be expected by 2015-16, feels Ranina. He also added that India's huge consumer base is likely to attract a lot of investment from overseas.

Here is the edited transcript of the interview on CNBC-TV18.

Q: What happens if the Rajya Sabha were to disapprove the FDI in retail proposal and if it were not to vote at all, if it were not allowed to vote?

A: If the government loses its vote in the Rajya Sabha, it is not going to make any difference whatsoever because this is only a notification which has to be placed on the table of parliament and there is no need for a vote. So the opposition will only get political victory saying that it has been defeated in the Rajya Sabha. But, as far as the policy is concerned it will have absolutely no impact.

And the same goes on whether the Rajya Sabha is allowed to function or not. If Rajya Sabha is not allowed to vote then obviously the opposition will again take political mileage out of it saying, the government wants to bring the parliament to a standstill. As far as FDI is concerned, it is going to make no impact whatsoever.

Q: The Foreign Exchange Management Act (FEMA) clause 48 apparently very clearly states that all amendments will have to be passed by each house of parliament. Would not subordinate legislation count as amendments, they would count as something else?

A: Yes it would count as something else. Amendments are amendments to the act that has to be passed by parliament. But there are rules and notifications. In fact rules also have to be placed on the table of parliament and they don’t have to be approved though, there is a procedure that if a certain number of members disapprove, they will bring up a motion and then it will be voted upon.

But, normally it is just placed on the table of parliament. As far as notifications are concerned, that is even below the rules and regulations. For notifications you don’t need any approval whatsoever.

Q: To break this down a little more in simplified terms of a possible example - say an MNC at this point does want to come into India with regards to FDI in multi brand retail and take that opportunity up. Will they face any bottlenecks at this point or would it be a clear-cut considering that it is an executive decision and that we have got a yes from the Lok Sabha?

A: The important point is that this is only an enabling policy. Now if a multinational wants to come, the first thing it has to do is to apply to the state government. Therefore, this policy says it is for the state government to decide whether to give them the license under the Shops and Establishment Act. That is within the province of state government and central government has nothing to do with it. In fact that is a whole point made by the government in power saying that we are only having an enabling provision.

So the multinational will have to apply to the state government and if it grants them the licenses under the Shops and Establishment Act, then they can go ahead and setup their store in that particular state.

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Q: You maybe liaising with a lot of corporate clients, what is your sense given the fractured nature of the mandate and fairly acerbic debates that we saw yesterday in the Lok Sabha, would people come in and invest now or would they wait for the next election and wait for things to settle down. Are we going to get those big bucks any time soon?

A: That is doubtful. The big bucks will come only after maybe a year or two years even in a normal course. Let us assume there was complete unanimity. It takes a lot of time for the spadework to be done for bringing in the funds. It will only come in when the actual project is on stream. This is always the case in India and therefore, in case of FDI also we will expect big bucks to come maybe in 2015-2016 only.

But, I am also very confident that things will settle down, people will realise that this is something which if some state starts, if some stores come up, other states will also want to do the same. In course of time the concept of FDI in retail will pick up. In India, everything is opposed every time something new comes up but, things settle down in the next two-three years. I am sure money will start flowing in and India has a great potential with 200 million consumers. You must understand that we have a population of England and France put together and therefore, it's a big market which nobody can overlook.

Q: You discussing with clients etc, has this sentiment changed with regards to the policy push despite the fact that FDI in multi-brand retail is fractured but and it is still going through, has sentiment changed towards India, are people looking at it more positively that yes may be reforms are coming through more decisively?

A: Yes people are looking at the fact that in spite of the opposition which is normal in any democratic setup, it will happen all over the world. I don’t think we should pick up India alone. That’s the essence of democracy, there will always be opposition.

Even today, in other countries there is opposition to the multinationals. But that doesn't mean that they are not there, they will be there and that is factored into any democratic society. There will be opposition but, they look at the commercial reality and they realize that things will happen in due course.

But, you have to be patient, you have to do the right thing in the right way. Also don’t forget that for FDI in retail there are a lot of conditions and other caveats which have been put in the policy. So they will have to comply with all those conditions and caveats and only then it will go through.

Q: There is a sovereign in Indian corporate at this juncture, the case going on between the Maldives government and GMR Infrastructure. With the wealth of your experience when other corporates are pulled up or find themselves in the rough end of the stick vis-à-vis sovereigns, what is the sense? Can corporates really win against sovereigns whether you look at Enron, whether you look at any host of cases in Indian history itself, Telenor or Sistema. Sovereigns normally win right or wrong, don't they?

A: Yes, you are right. They do win but at the same time the sovereign also is subject to changes. They change the policies, there is nothing sanctimonious about sovereigns policy. What we have found is as you knew years ago, when Coca-cola was thrown out of India in 1977-1978 they are still back with a bang. Things change. Sovereign doesn’t mean that it will be permanent, but you are right to some extent if the sovereign does win.

But, I would like to put one caveat that today we have what is called international law. If there is a dispute between a corporate and a sovereign, you have the access to go to the international court of justice. Now, in this particular case that you referred to of Maldives and GMR Infrastructure, they had in this agreement that if there is a dispute, it will be referred to the high court of Singapore.

The high court of Singapore has given a verdict in favour of GMR. The Maldives government should respect that verdict because if it does not do so, it will have a very bad impact on any foreign investment in that country and if GMR wants to go, they can go to the international court of justice in case the Maldives government refuses to respect the verdict of the Singapore High court.

Q: What would be the further course of action for GMR considering that the stay order hasn’t been adhered to or possibly won’t be adhered to by the Maldives government then?

A: I would think that GMR will first try to negotiate, try to come to reach some compromise with Maldives government and if push comes to shove then in their final thing they will go to the international court of justice. But, I think it will be avoided. That's my feeling and it should be avoided, there is no use trying to fight a sovereign.

They will try to come to some compromise or the other. So that's what I think how things will pan out in the future, they will try to reach a compromise and only in the final analysis they may decide to go to the international court of justice.