November 28, 2011 3:36 pm

Revolt escalates against Indian retail reform

India’s government faced a full-scale parliamentary revolt on Monday against its decision to open the country’s retail sector to foreign companies as opponents expressed fears for small traders and employment.

The ferocious political opposition to the liberalisation highlights how difficult it is to enact economic reforms to boost investment and growth in Asia’s third-largest economy.

The furore, and threat of an embarrassing policy reversal, may deter multinational retailers from announcing their investment plans for India. Ikea, the unlisted Swedish furniture group, was expected to be the first global retailer to announce a major investment in India on Wednesday.

Two major coalition allies of the ruling Congress party have deserted it following last week’s decision to allow majority foreign ownership of supermarket chains and outright foreign control of single-brand retail companies. The new rules pave the way for the expansion of groups like Walmart, Carrefour and Tesco in a highly-protected market worth $450bn.

The coalition allies warned that one of the largest economic reforms for years would hurt farmers and small traders, and lead to millions of job losses.

Manmohan Singh, prime minister, was forced to call an all-party meeting, which is scheduled for Tuesday, to try to defuse a growing political crisis that threatens to leave his party isolated and severely test his authority.

On Monday, his commerce minister, Anand Sharma, wrote to chief ministers and opposition leaders to “dispel apprehensions” about measures to transform India’s rural economy.

“Policy initiatives taken in [the] larger national interest demand political leadership to rise above partisan politics to create a healthy bipartisan consensus,” he urged a bitterly divided polity.

Mamata Banerjee, the chief minister of West Bengal and the leader of the Trinamool Congress, said her party was left out of consultations that led to the cabinet decision last Thursday.

Her party is seeking a rollback of the reforms.

“Some people might support it, but I do not support it,” Ms Banerjee said. “You see America is America … and India is India. One has to see what one’s capacity is.”

The Dravida Munnettra Kazhagam party, the Congress party’s ally in the southern state of Tamil Nadu, vilified the reforms calling them a “danger” to the state.

“It is dangerous to allow foreign direct investment in retail trade as it will affect hundreds of thousands of small traders as well as the poor and middle-class consumers. It will also be a cause for economic decline for our country,” said M. Karunanidhi, the party’s leader.

The Bharatiya Janata party, the main opposition, said India’s long-paralysed parliament had no hope of functioning unless the government immediately reversed its decision.

“If the government announces a rollback of the decision by Monday night or even in the all-party meeting Tuesday, parliament will run smoothly,” Sushma Swaraj, a BJP leader said.

She said the government had by-passed parliament with its decision and she demanded a debate on retail reforms.

The Confederation of All India Traders, a business group representing small traders, plans a nationwide strike on Thursday.

Rajiv Kumar, the director general of the Federation of Indian Chambers of Commerce and Industry, said the retail reforms stood to unleash a wave of domestic and foreign investment held back by uncertainty over policy towards large-format retailing.

But he warned that a big “political apprehension” was that foreign retailers would be a conduit for low-priced Chinese products to enter India.

“This will be a game changer just like telecoms,” Mr Kumar said. “This [retail] sector is backward and lagging behind the rest of the economy.”

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