India retail reform unravels after backlash

Wed Dec 7, 2011 9:55am EST
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By Manoj Kumar

NEW DELHI (Reuters) - India suspended plans to open its $450 billion supermarket sector to foreign firms such as Wal-Mart Stores Inc (WMT.N: Quote), backtracking from one of the government's boldest reforms in years in the face of a huge political backlash.

The retreat, within two weeks of the policy being announced, is another nail in the coffin of Prime Minister Manmohan Singh's economic reform program, just as Asia's third-largest economy suffers from slowing growth and falling investment.

It is also likely to cement a view that India is an emerging market slowcoach compared to other so-called BRICS nations such as China and Brazil.

"The image, the credibility of the government is lost," said D.H. Pai Panandiker, head of the RPG Foundation think-tank.

Both ruling Congress party allies and opposition parties, fearing job losses for millions of small shopkeepers, had disrupted parliament for two weeks in protest, stalling some key bills such as increased food subsidies for the poor.

"The decision to permit 51 percent FDI in multi-brand retail trade is suspended until a consensus is developed through consultations among various stakeholders," Finance Minister Pranab Mukherjee said in a statement on Wednesday.

On the upside, putting the retail plan on hold will get parliament back to work, allowing the government to pass other key reforms.

The policy would have allowed foreign firms such as Wal-Mart, Carrefour (CARR.PA: Quote) and Tesco (TSCO.L: Quote) to own 51 percent in supermarkets, with the government hoping this would ease high inflation, and draw in investment to improve supply-chain infrastructure and create jobs.   Continued...