India’s main opposition called for an all-party meeting to end parliamentary gridlock over Prime Minister Manmohan Singh’s decision last month to allow Wal-Mart Stores Inc. (WMT) and other foreign companies to own supermarkets.
The Bharatiya Janata Party’s spokesman Ravi Shankar Prasad said yesterday that the government must inform all parties of its latest position amid claims by Singh’s biggest ally on Dec. 3 that the policy had been suspended. Finance Minister Pranab Mukherjee told reporters separately yesterday in New Delhi that he will make a statement in parliament when it reconvenes tomorrow after a two-day break.
The logjam has sparked concern Singh will cave in to the opposition’s demands and imperil a plan that his government says will attract foreign investment and check inflation above the central bank’s comfort zone. The government may delay allowing overseas companies to control retailers because of opposition from its allies to the new rules, two finance ministry officials with direct knowledge of the matter said.
“If that is official, then it is a tactical retreat by the government,” said G.V.L. Narasimha Rao, managing director of New Delhi-based Development & Research Services. “It will keep the implementation on hold and will wait for an opportune moment to push it forward again.”
Trinamool Congress, an ally in Singh’s coalition government and which opposes the easing of ownership rules in retail, has “issues” with and will oppose foreign investment in airlines and the pension industry as well, spokesman Derek O’Brien said in an interview on the CNBC-TV18 network yesterday.
Nine days of protests in parliament over the policy have forced repeated adjournments in the winter session that started Nov. 22. About 31 bills are waiting to be passed, including legislation to create an anti-corruption agency with powers to prosecute government officials. Last year’s winter sitting was the least productive in 25 years.
Traders shut their shops across India on Dec. 1 in a daylong strike, demanding the government scrap a proposal that they say will force the closure of millions of small businesses. Foreign investment will create as many as 10 million jobs and curb inflation, Trade Minister Anand Sharma, said Nov. 25.
Trinamool, which rules the state of West Bengal, said on its website Dec. 3 that the government has suspended its decision until there’s a consensus among all parties, citing a conversation between its chief Mamata Banerjee and Mukherjee.
The delay in the policy triggered a slump in the shares of retailers in Mumbai yesterday. Pantaloon Retail India Ltd. (PF), the country’s largest chain by market value, tumbled 12.9 percent, the most since May 2002, to 186.35 rupees. Trent Ltd. (TRENT) fell 3.3 percent to 962.50 rupees, while Vishal Retail Ltd. (VISH) slid 6 percent to 18.90 rupees.
“They are getting hammered as the government is likely to withdraw or defer the proposal,” said R.K. Gupta, the New Delhi-based managing director of Taurus Asset Management Ltd., which manages $1.1 billion. “This policy inertia may have a negative impact as foreign investors will lose confidence in the government.”
In an attempt to kick start an economy that expanded at the slowest pace in two years in the quarter ended Sept. 30, Singh approved overseas companies including Carrefour SA (CA) and Tesco Plc (TSCO) to own as much as 51 percent of retailers selling more than one brand, adding riders to benefit the local economy.
Singh, besieged by opposition over his failure to check inflation and allegations of graft in his administration, is also trying to fend off criticism that decisions have stalled on his watch.
Gross domestic product grew 6.9 percent last quarter, while benchmark inflation stayed above 9 percent all of this year even after 13 interest-rate increases since March 2010. The rupee has slid 13.1 percent this year, the worst performance in Asia, as overseas funds turned net sellers of equities.
With the entry of the foreign chains, India’s retail industry may gain $8 billion to $10 billion in investment in the next five to 10 years as local companies try to keep pace, according to Kishore Biyani, founder and managing director of Pantaloon.
Moody’s Investors Service said the initiatives are “credit positive” and will “incentivize foreign investment in India.”
“Such opposition is neither unusual nor unexpected in Indian politics,” Atsi Sheth, a New York-based sovereign-risk analyst at Moody’s, said in a statement yesterday. “It appears that the ruling coalition is firm in its commitment, which bodes well for its eventual implementation.”