Opposition parties and government allies rounded on Prime Minister Manmohan Singh’s bid to open India’s retail sector to foreign companies like Wal-Mart Stores Inc. (WMT), stalling parliament for a fifth day with their protests.
In a rare concerted attack on the ruling Congress party, Singh’s two largest parliamentary partners joined the opposition in criticizing the policy approved by the Cabinet last week, forcing both houses of parliament to adjourn. Overseas retailers stand to be barred from opening stores in at least 19 of India’s 45 largest cities with state assemblies set to veto their entry.
“There is a lot of very strong opposition to this initiative that will take a very long time to resolve,” said Manish Sonthalia, who manages $250 million in equities at Mumbai-based Motilal Oswal (MOFS) Asset Management Co. “It is disappointing that there is no consensus at all.”
The biggest change to foreign ownership rules in India in more than six years came after Singh’s government had been on the defensive for more than a year, its legislative agenda stalled by corruption scandals. Commerce Minister Anand Sharma last week argued the step to attract foreign retailers may create up to 10 million jobs, give better prices to farmers and help reduce inflation by cutting food waste. Stores would be restricted to cities of more than 1 million people, he said.
His attempt to douse opposition to the plan failed. Uttar Pradesh Chief Minister Mayawati, the leader of India’s most populous state, was among the regional leaders criticizing the government’s decision yesterday.
‘Sky High’ Prices
She said allowing foreign direct investment in the retail sector would bankrupt her state by forcing local shops to close down and was motivated by a desire to appease overseas companies.
Tamil Nadu’s Chief Minister J. Jayalalithaa condemned the government for failing to consult parliament on such a key decision and said that the experience of allowing foreign retailers in other countries led to price rises as companies establish a monopoly exploiting farmers and consumers.
“The world over, whenever local governments opened up the retail sector, local prices went up sky high,” Jayalalithaa said in a statement. “To announce such a major policy decision affecting millions of people outside of parliament without even consulting the state governments is unprecedented and indicates the overwhelming arrogance of the government.”
Shares of Indian retailers fell in Mumbai trading as the level of opposition became evident. Pantaloon Retail India Ltd. (PF) dropped 6.1 percent and Trent Ltd. (TRENT), Tesco (TSCO)’s India partner, was down 3.1 percent as of 1:54 a.m.
The decision to lift the caps has been criticized by Congress’ leading allies, the Trinamool Congress and the Dravida Munnetra Kazhagam, who argue the move will lead to job losses and hurt small shopkeepers.
The ability of individual states to scupper the plans of foreign companies highlights the growing power of regional leaders in India at a time when the national government is weak, according to Satish Misra, a political analyst at the New Delhi- based Observer Research Foundation.
“The smaller parties are able to blackmail the government, completely stalling decision making,” said Misra. “This is bad policymaking because you have parties that are only thinking on a small-time horizon. They are not thinking about what is best for India as a whole.”
The Confederation of All India Traders and Bharat Udyog Vyapar Mandal, which represent small retailers, encouraged shopkeepers to close their stores on Dec. 1 in protest against the government’s decision.
India’s cabinet last week took the decision, which doesn’t need parliamentary approval, to allow overseas companies to own as much as 51 percent of retailers selling more than one brand. The government also approved plans allowing companies that sell a single brand such as Nike Inc. (NKE) to own 100 percent of their operations, removing a cap previously set at 51 percent.
The government took out full-page advertisements in major Indian newspapers yesterday saying the move will help farmers, benefit consumers and create more jobs. The adverts attempted to counter a number of “myths” such as farmers will be exploited and it will harm the interests of small local shopkeepers.
To contact the editor responsible for this story: Peter Hirschberg at firstname.lastname@example.org