Thursday, January 24, 2013

The Supreme Court adds a new twist to India's retail liberalization drama!

Srikar points me to this attempt by the Indian Supreme Court to formulate foreign direct investment (FDI) policy. In response to a PIL claiming that the government's retail market liberalization policy violated the fundamental right of small traders, a two judge bench of the Court sought clarification from the government on the safeguards protecting the interests of small traders.
It's been four months since this happened. Have you got any investment which you were contemplating or is this just a political gimmick... Reforms is one part but the same should not close the doors of other traders... What are the checks in place to ensure that there is no obstruction to free trade, especially the small ones. Policy is not sacrosanct, we would also analyse it within the judicial parameters. Our exercise is very constitutional and limited to the constitutional principles... It's possible that a giant retailer might reduce the price of a commodity forcing the small retailers to shut shop. Once there is no competition, the retail giant can monopolise.
Now, this is clearly way beyond the Supreme Court's mandate and a classic example of judicial transgression into the realm of the legislature. What way is the judiciary concerned with the investments received? What evidence is there to show that retail liberalization will "close the doors of other traders"? What is "constitutional" about the promotion of free trade, especially among small traders? What way does the government's policy to liberalize retail trade infringe on the "basic features" of the constitution? What way are the interests of consumers (who gain by lower prices) inferior to that of the traders?

In fact, by raising these issues, the SC has waded into the debate about the dynamics of the free-market, with its inevitable distributional consequences. Since any trade policy measure will have losers and winners, will the judiciary always adjudicate on its distribution of costs and benefits? Is the SC competent, both legally and professionally, to examine such questions? By the same yardstick, it can tomorrow question the government's decision to lower or raise taxes on certain categories of people or regulate some economic activity on grounds of it violating or not promoting certain interests.

Stepping back, I have two observations.

1. This is symptomatic of the difficulty of getting any reform policy through in India. The issue of retail trade liberalization has been dissected in great detail by all and sundry for nearly two years now and, after following the due process, the government of the day has taken a well-considered policy decision which has been approved by the highest body of the country. In any functioning democracy, all debates should have ceased. Instead, we have more uncertainty. Judicial over-reach (sample the large numbers of cases involving land acquisition and environmental clearances that are stuck up in courts) is one of the most important contributors to the environment of uncertainty that characterizes any policy in India.

2. Finally, most importantly, it is amazing that an institution which is so chronically over-burdened and inefficient in the disposal of cases, gets swayed by populist urges and has the time to waste on matters where its locus standi is questionable. In fact, one of the reasons for the large scale pendency of litigation before the SC and other courts is the failure to exercise due diligence in screening cases. When your bandwidth is so severely constrained, it is plain obvious that some form of prioritization is the need of the hour.


KP said...

Dear Gulzar,

I find this post both interesting and a little fuzzy.

- You ask an important question about whether courts can choose to examine the 'validity of' distributional consequences of a policy. Or, whether a policy considered as settled through discussion in the legislature can be adjudicated, unless it violates the constitution.

I think it is a vital to have principles that guide the choice (and that could well be the case, I am not aware of what they are) - but the charge of 'populism' may be too broad. Unless, the judiciary in principle is not expected to react to any social factors that necessitate a re-look. When it works well, the system is expected to be a check on a policy makers over-reach.

The issue is one of appropriate domain or sphere of influence rather than one of competence - which I hope the courts do have, if necessary - and points to a larger problem if there is no capability to assess and adjudicate in these areas.[if and only when appropriate]

[ However, the issue takes a different hue where the state intervenes to introduce market based distributional principles into communities that are structured through community ownership and a social(economic) order that cannot withstand the onslaught of markets - effectively decimating their societies structure and practices.My limited understanding is that tribal areas have such explicit protections under the constitution.]

But your two observations of

- Poor selection, also adding to or leading to

- Capacity constraints

may not be illustrated aptly by the examples of land acquisition / environmental clearances. Unless the contention is that courts are unnecessarily allowing a re-litigation of settled principles, bowing to populism rather than any fundamental need to reexamine the issue (land acquisition, compensation, rehabilitation and environmentalism ).

I like the interesting question at the beginning - and, I make no claim to any expertise in the areas I feel are fuzzy.

Just my observations, and not necessarily data driven.

regards, KP.

Anonymous said...

If the courts really want to hear such cases, they should first seek opinions of eminent economists both in India and abroad. Also, case studies from other developing or developed countries could help in assessing the extent of economic impact. May be the govt should have first undertaken such an exhaustive study to backup the new policy. In any case, modernization of trade sector had already started with the advent of domestic retail chains. I wonder why then this selective ruckus. As I see, the problem really stems from govt not being able to admit about the possibility of loses to domestic small traders or stores as a result of large-scale modernization of trade sector. Admitting possibility of such a structural change and asserting the extent of positive net benefits to the society in the long-run would help rallying greater support to the cause and keeping at bay fear mongering.