Indian Retailers Slump on Concern Singh to Suspend FDI Decision
Pantaloon Retail India Ltd. (PF) led a slump in Indian department-store stocks on concern Prime Minister Manmohan Singh will suspend last month’s decision to allow foreign companies to take majority stakes in supermarkets.
Singh’s biggest ally Mamata Banerjee, the chief minister of West Bengal state, told reporters in Kolkata Dec. 3 that the federal government is in favor of building a consensus among all parties before implementing the policy. Pantaloon, the country’s largest chain by market value, dropped 9.6 percent to 193.4 rupees as of 11:28 a.m. in Mumbai, while Shoppers Stop Ltd. (SHOP) fell 5.1 percent to 341.75 rupees, touching an almost three-week low.
“They are getting hammered as the government is likely to withdraw or defer the proposal,” said R.K. Gupta, 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.”
Singh’s own allies are opposed to opening up the country’s $396 billion retail market to companies including Wal-Mart Stores Inc. (WMT) and Carrefour SA (CA), saying such a move would ruin local mom-and-pop stores. Traders shut their shops across India on Dec. 1 in a daylong strike, demanding the government scrap its proposal. Foreign investment will create as many as 10 million jobs and curb inflation, Trade Minister Anand Sharma, said Nov. 25.
Deepak Parekh, chairman of India’s largest mortgage lender Housing Development Finance Corp., and Ashok Ganguly, former chairman of Unilever Plc. (UNA)’s India unit, said in a joint letter yesterday that the protests are “misconceived” as modernizing the trade is needed to spur growth.
“Foreign direct investment in retail hasn’t been a sudden decision taken by the government,” they said in a joint statement e-mailed yesterday. “On the contrary, the idea has been toyed with for over 14 years. Modernization of the retail trade is an essential part of India’s growth story.”
Parekh and Ganguly served on a government-appointed panel that last year produced a report on foreign direct investment.
Sharma, Ambika Soni, the minister of information, Salman Khurshid, the minister of law, and Dinesh Trivedi, the minister of railways and a member of Banerjee’s Trinamool Congress, didn’t answer calls from Bloomberg to their office phones yesterday.
Finance Minister Pranab Mukherjee told the Indian Express newspaper that he will make a statement in Parliament when it reconvenes on Dec. 7 after a two-day break.
India’s retail industry will gain $8 billion to $10 billion in investment in the next five to 10 years as competitors abroad enter and local companies try to keep pace, according to Kishore Biyani, founder and managing director of Pantaloon Retail.
Singh, who is already under siege over a failure to check inflation and allegations of graft in his administration, is trying to fend off criticism that decisions have stalled on his watch.
In an attempt to kick start an economy that expanded at the slowest pace in two years in the quarter ended Sept. 30, he approved overseas companies to own as much as 51 percent or retailers selling more than one brand, adding riders to benefit the local economy.
Parliament has seen repeated disruption for four sessions. Last year’s winter sitting was the least productive in 25 years. The government plans to pass 33 bills, including legislation to create an anti-corruption agency with powers to prosecute most government officials, have been sidelined by the protests over foreign direct investment in retail.
Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.