India shelves plans to open retail sector

India shelves plans to open retail sector

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Business Day - Dec 5th 2011, 08:34

Giants like Walmart blocked from India until consensus can be reached, pro-foreign lobby says move will send a "bad signal" to investors 

India's government "suspended" plans to open the country’s substantial retail sector to global competition, plans that have paralysed parliament, an ally of the ruling coalition said at the weekend.

The move to allow foreign investment by Walmart and other supermarket giants in India’s estimated $470bn retail industry was the first big reform announced since the government began its second term in 2009.

Finance Minister Pranab Mukherjee "has informed me that the government is suspending the FDI (foreign direct investment) retail issue until a consensus has evolved", Mamata Banerjee, chief minister of West Bengal state, said in televised remarks. She said the decision to delay foreign investment was not "temporary".

Mr Mukherjee confirmed he had spoken to Ms Banerjee but said he could not comment on her statement. "Officially I cannot announce anything because parliament is in session. A government announcement will be made in parliament."

But a Congress Party spokesman said the party welcomed "all meaningful efforts" to break the stalemate that has hamstrung parliament, threatening to derail the government’s legislative plans.

"In such a situation (as changes to the retail policy), a broad consensus is required," Congress general secretary Janardan Dwivedi told India’s CNN-IBN network on Saturday.

Indian TV quoted government sources as saying Premier Manmohan Singh’s government was not abandoning the retail policy changes announced last month, but would seek agreement before proceeding.

Anger over the reforms has united shopkeepers, trade unions, state leaders and legislators from opposition parties and from within Mr Singh’s own coalition.

Ms Banerjee’s regional Trinamool Party is the biggest partner of the Congress coalition and important to its survival in parliament. The Trinamool Party had objected to the government allowing international supermarkets into India, saying the move would swamp the small family-owned stores that dominate the retail landscape, and would throw millions out of work.

Any retreat on retail reform would be a major blow to Mr Singh’s administration, which has struggled for months against charges of policy paralysis amid worsening economic data and high inflation.

"A rollback would be a very bad thing," Saloni Nangia, senior vice-president of retail at Technopak, a top Indian consultancy, said before Ms Banerjee’s statement.

"It would send a bad signal to the international community about the potential for investment."

Foreign multinational corporations have lobbied for years to sell directly to Indians.

The main opposition Bharatiya Janata Party has been co-ordinating protests with shopkeepers who held a one-day nationwide strike last Thursday. It said it wanted a formal abandonment by the government of the cabinet decision to open up to global supermarkets before it would let parliament function.