Sakshi of PRS Legislative Research discusses the government's ordinance-making power in the context of the National Food Security Ordinance in an Indian Express opinion editorial. On Wednesday, the Union cabinet approved the food security ordinance. The government has already introduced a National Food Security Bill in Parliament in December 2011. Parliamentary consideration on the bill has been initiated with the standing committee submitting its recommendations and the government proposing amendments to the law. After being listed on several occasions for discussion, members of Parliament began debating the bill in the last few days of the 2013 budget session. In spite of all this, the government has chosen to promulgate an ordinance. In all likelihood, Parliament will reconvene in a few weeks for the monsoon session. In this context, it would be useful to understand the ordinance-making power of government and its usage in the recent past. Under the Constitution, the power to make laws rests with the legislature. The executive has been given the power to make laws when Parliament is not in session and "immediate action" is necessary. In such scenarios, the president can issue an ordinance on the advice of the executive, to have the same effect as an act of Parliament. In the 1980s, the Supreme Court was confronted with a case where a state government repeatedly re-promulgated ordinances that had lapsed in previous assembly sessions. This led the SC to examine the ordinance-making power of government. The SC reasserted the constitutional principle that the primary law-making power rests with the legislature and not the executive. The executive is only given the legislative power to issue an ordinance to meet an "emergent situation". Such a situation arose in 2011 when, given that students were awaiting their degrees on the completion of their course, the government issued an ordinance to grant IIIT-Kancheepuram the status of an institute of national importance so that students could be awarded their degrees. Data over the last 60 years indicates that the highest number of ordinances, 34, were passed in 1993. Over the 15th Lok Sabha (2009-2013), there have been 16 ordinances, indicating a decline in the number of ordinances being issued every year. Once an ordinance is framed, it is to be laid before Parliament within six weeks of its first sitting. Parliament is empowered to either choose to pass the ordinance as law or let it lapse. Once the ordinance is laid in Parliament, the government introduces a bill addressing the same issue. This is typically accompanied by a memorandum tabled by the government, explaining the emergent circumstances that required the issue of an ordinance. Thereafter, the bill follows the regular law-making process. If Parliament does not approve the ordinance, it ceases to exist. The drafters of the Constitution created this check on the law-making power of the executive to reinforce the notion that law-making will remain the prerogative of the legislature. Earlier this year, in the aftermath of the Delhi gangrape, public pressure led the government to appoint a three-member committee under the late Justice J.S. Verma to suggest changes to laws relating to crimes against women. An amendment bill had already been pending in Parliament. In spite of this, the government brought in the Criminal Law Ordinance, giving effect to some of the committee's recommendations. Once Parliament reconvened, the government introduced a fresh bill replacing the ordinance, seeking to create more stringent provisions on matters related to sexual offences. It passed muster in both Houses. While the Criminal Law Ordinance is an illustration of an ordinance successfully passing through Parliament, there are examples of ordinances that have lapsed because they were not approved by Parliament. In 2004, a week after the winter session ended, the government issued an ordinance to give the Pension Fund Regulatory and Development Authority statutory powers as a regulator. Due to political opposition, the ordinance lapsed and, subsequently, the bill lapsed at the end of the 14th Lok Sabha. The government re-introduced it as a bill in 2011, which is currently pending in Parliament. Although the government has used its power to issue a food security ordinance, the law guaranteeing this right will have to stand scrutiny in Parliament. What remains to be seen is how Parliament debates the right to food in the upcoming monsoon session. That should give us some food for thought. For an analysis of the National Food Security Bill, refer to Sakshi's blog post here.

After months of discussion,  the issue of FDI in retail is being deliberated in the Lok Sabha today.  In September 2012, the Cabinet had approved 51% of FDI in multi-brand retail (stores selling more than one brand).  Under these regulations, foreign retail giants like Walmart and Tesco can set up shop in India.  Discussions on permitting FDI in retail have focused on the effect of FDI on unorganised retailers, farmers and consumers. Earlier, the central government commissioned the Indian Council for Research on International Economic Relations (ICRIER) to examine the impact of organised retail on unorganised retail. The Standing Committee on Commerce also tabled a report on Foreign and Domestic Investment in the Retail Sector in May, 2009 while the Department of Industrial Policy and Promotion (DIPP) released a discussion paper examining FDI in multi-brand retail in July, 2010.  Other experts have also made arguments – both in support of, and in opposition to, the move to permit FDI in retail sales. The table below summarises some of these arguments from the perspective of various stakeholders as collated from the above reports examining the issue.

Stakeholder

Supporting arguments (source)

Opposing arguments (source)

Unorganised retail
  • No evidence of impact on job losses (ICRIER).
  • The rate of closure of unorganised retail shops (4.2%) is lower than international standards (ICRIER).
  • Evidence from Indonesia and China show that traditional and modern retail can coexist and grow  (Reardon and Gulati).
  • Majority of small retailers keen to remain in operation even after emergence of organised retail (ICRIER).
  •  Unorganised retailers in the vicinity of organised retailers saw their volume of business and profit decline but this effect weakens over time (ICRIER).
  • Other studies have estimated that traditional fruit and vegetable retailers experienced a 20-30% decline in incomes with the presence of supermarkets (Singh).
  • There is potential for employment loss in the value chain. A supermarket may create fewer jobs for the volume of produce handled (Singh).
  • Unemployment to increase as a result of retailers practicing product bundling (selling goods in combinations and bargains) and predatory pricing (Standing Committee).
Farmers
  • Significant positive impact on farmers as a result of direct sales to organised retailers.  For instance, cauliflower farmers receive a 25% higher price selling directly to organised retailers instead of government regulated markets (mandis).  Profits for farmers selling to organised retailers are about 60% higher than when selling to mandis (ICRIER).
  • Organised retail could remove supply chain inefficiencies through direct purchase from farmers and investment in better storage, distribution and transport systems.  FDI, in particular, could bring in new technology and ideas (DIPP).
  •  Current organised retail procures 60-70% from wholesale markets rather than farmers. There has been no significant impact on backend infrastructure investment (Singh).
  • There are other issues like irrigation, technology and credit in agriculture which FDI may not address (Singh).
  • Increased monopolistic strength could force farmers to sell at lower prices (Standing Committee).
Consumers
  • Organised retail lowers prices. Consumer spending increases with the entry of organised retail and lower income groups tend to save more (ICRIER).
  • It will lead to better quality and safety standards of products (DIPP).
  •  Evidence from some Latin American countries (Mexico, Nicaragua, Argentina), Africa (Kenya, Madagascar) and Asia (Thailand, Vietnam, India) reveal that supermarket prices for fruits and vegetables were higher than traditional retail prices (Singh).
  • Even with lower prices at supermarkets, low income households may prefer traditional retailers because they live far from supermarkets, they can bargain with traditional retailers and buy loose items (Singh).
  • Monopolistic power for retailers could result in high prices for consumers.

Source: ICRIER [1.  "Impact of Organized Retailing on the Unorganized Sector", ICRIER, September 2008]; Standing Committee [2.  "Foreign and domestic investment in retail sector", Standing Committee on Commerce, May 13, 2009]; Singh (2011) [3. "FDI in Retail: Misplaced Expectations and Half-truths",  Sukhpal Singh, Economic and Political Weekly, December 17, 2011];  Reardon and Gulati (2008)  [4. "Rise of supermarkets and their development implications," IFPRI Discussion Paper, Thomas Reardon and Ashok Gulati, February 2008.]; DIPP [5. "Discussion Paper on FDI in Multi-brand Retail Trading", Department of Industrial Policy and Promotion, July 6, 2010]