December 5, 2012 3:25 pm

India’s ruling party wins retail FDI vote

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India’s ruling Congress party won an important political victory on Wednesday, when the lower house of parliament voted in favour of allowing foreign supermarket chains such as Walmart, Tesco and Carrefour to set up shop in India, after two days of heated debate on the issue.

The non-binding vote was a crucial test of strength for the Congress-led ruling coalition, which has been under fire for weeks for deciding to allow foreign direct investment in a retail sector dominated by millions of small family-run businesses.

Although parliamentary approval was not required for the government to permit FDI in retail, the Hindu nationalist opposition Bharatiya Janata Party, and its allies, have been disrupting parliament in protest against the measure since the winter legislative session began on November 22.

The Congress victory on Wednesday is expected to clear the way for the government to make progress in long-pending reform measures, including modernising laws on banking, insurance and land acquisition.

“It’s symbolic,” Sonal Verma, an economist at Nomura, said of the government’s victory. “The Congress looks stronger. Other reforms that require parliamentary approval may also have some chance.”

However, retail experts said the lower house verdict was unlikely to end the bitter national debate over foreign supermarkets, given the deep-seated political opposition to the measure.

The Congress won on Wednesday because two smaller allied parties abstained from voting, despite their highly vocal opposition to FDI in retail, to avoid a no-confidence vote that could have precipitated new elections.

The government won the support of 254 parliamentarians out of the 471 who voted, sufficient to carry the day.

However, the upper house of parliament, where Congress has less support, is to hold its own debate and vote on foreign direct investment in retail later this week.

“Parties didn’t want to make this a vote of no confidence,” said one New Delhi-based retail expert. “The vote in the lower house is not a conscience outcome. The real conscience vote will come in the upper house of parliament.”

The government of Manmohan Singh, the reformist prime minister, announced in November 2011 that it was opening its $450bn retail sector to foreign supermarkets to strengthen and increase the efficiency of its farm-to-fork supply chain.

But within weeks, the government backtracked and “suspended” the reform measure, following a huge outcry from opposition parties, and its own coalition partners. The government was putting the measure on hold so as to build ‘consensus’ on the issue.

In September – with the rupee wallowing near all-time lows, and credit rating agencies warning of a possible downgrade of India’s sovereign credit rating, the government reaffirmed its original decision, though it said foreign retailers would have to find states willing to host them.

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