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Indian government in U-turn on retail reform

08 december 2011, 17:46
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Shopkeeper waits for the customers at his shop on the old quarters of New Delhi. ©AFP
Shopkeeper waits for the customers at his shop on the old quarters of New Delhi. ©AFP
India on Wednesday suspended plans to open its $470 billion retail sector to foreign supermarkets such as Wal-Mart, in a major U-turn forced by an outcry from small shopkeepers and opposition MPs, AFP reports.

The climbdown was a grave embarrassment for Prime Minister Manmohan Singh's government, which had announced the retail reform with great fanfare just two weeks ago.

The arrival of international chains such as Wal-Mart, Carrefour and Tesco in India was expected to herald a consumer revolution with shoppers moving from small, neighbourhood stores to large, out-of-town supermarkets.

But anger over the planned reforms united "mom and pop" store owners, trade unions, influential state leaders and opposition lawmakers who have paralysed parliament over the issue.

"The decision to permit 51 percent (foreign direct investment) in multi-brand retail will be suspended till a consensus is developed through consultations," Finance Minister Pranab Mukherjee told parliament.

The Federation of Indian Chambers of Commerce and Industry (FICCI), the country's leading business body, described the government's reversal as "deeply disappointing".

"It is a highly regressive move," it said in a statement. "For the economy as a whole it is imperative that the reforms like these should take place."

Observers added that the capitulation would fuel criticism of indecision and policy drift within Singh's administration amid worsening economic data and a series of corruption scandals.

"This is a huge setback and will not go down well with foreign investors," said P. Phani Sekhar, fund manager with Mumbai's Angel Broking.

Sushma Swaraj, parliamentary leader of the main opposition Bharatiya Janata Party (BJP), which had spearheaded opposition to the reform, mocked the government benches as she welcomed Mukherjee's announcement.

"Bowing down to the popular sentiment is not a defeat for the government," Swaraj said. "That the government bowed down before popular sentiment is a great victory for democracy."

The U-turn was confirmed earlier Wednesday at an all-party meeting aimed at breaking the parliamentary logjam.

In his statement to parliament, Mukherjee said he hoped the house would now make the most of the 10 remaining days of the current session to pass a host of pending bills, including key legislation on corruption and food subsidies.

The suspended reform would have allowed foreign firms to hold a 51 percent stake in "multi-brand" chains, posing the threat of sharp competition to traditional shops.

Kishore Kharawala, general secretary of the National Association of Small Traders which helped organise a one-day strike against the reforms last week, welcomed the government's retreat.

"Any decision which goes towards protection of national interests is welcome," Kharawala told AFP in Mumbai. "We will continue to oppose the policy if the government tries to introduce it again."

Premier Singh and many industry leaders had argued that a modern retail system would benefit consumers, create new jobs and enable farmers to reduce wastage.

The sector is worth an estimated $470 billion in annual sales, with high growth potential as India's 1.2 billion people move towards a more Western-style consumer economy.

An Associated Chambers of Commerce and Industry of India (ASSOCHAM) survey, published at the weekend, had suggested that 90 percent of consumers believed the measure would lead to more choice and lower prices.

More than 75 percent of farmers said direct dealings with retailers would cut out middle-men, help to get better value for products and lessen huge losses of perishable items.

But the poll of 2,000 people in 10 major cities also indicated that 80 percent of convenience store owners were opposed, saying that "big box" stores were not as flexible in terms of home delivery and credit services.

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