India’s Commerce Minister Anand Sharma said the cabinet’s decision to allow foreign retailers such as Wal-Mart Stores Inc. to open outlets in the country will create up to 10 million jobs and give farmers better prices.
The first major change to Indian foreign ownership rules in five years announced yesterday is opposed by Prime Minister Manmohan Singh’s two largest parliamentary allies and the main federal opposition Bharatiya Janata Party. Lawmakers protesting the move forced the adjournment of parliament today, the fourth day in a row that debates have been suspended in the house.
“The step which we have taken is an investment in the present and the future of this country,” Sharma told reporters at a press conference today. “It will be a fillip to job creation in the manufacturing sector and it will have a multiplier effect on the economy.”
Yesterday’s decision was the climax of more than seven years of debate over allowing companies such as Wal-Mart and Carrefour SA to enter India. Previous attempts to change the laws have been rebuffed by criticism from coalition partners. The government argues that attracting foreign investment in retail infrastructure will tame the highest inflation among Asia’s largest economies and reduce waste in a country where 40 percent of food and vegetables rot before they can be sold.
Overseas companies will be allowed 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. to own 100 percent of their operations, removing a cap previously set at 51 percent.
Conditions for foreign retailers opening stores include having to invest a minimum of $100 million. At least 50 percent of that money must be spent on backend infrastructure and 30 percent of produce must be bought from small industries.
Individual Indian states will have to give their consent to allowing foreign companies to open shops, Sharma said, and companies will only be able to establish stores in cities with more than one million people.
Wal-Mart, Carrefour and Tesco Plc have been seeking to enter the world’s second-most populous nation to tap a market expected to double to $785 billion by 2015 from $396 billion this year, according to Business Monitor International.
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 BJP cites the same reasons for its opposition.
“We are potentially looking at more levels of gridlock and antagonism” in parliament, said Sanjay Kumar, a New Delhi-based analyst at the Centre for the Study of Developing Societies. “At the moment opposition political parties are looking for an excuse to put the government on the back foot.”
That’s bad news for an administration seeking to end a yearlong policy freeze triggered by corruption charges against a former cabinet minister and other government officials. Ministers plan to pass 31 bills during the four-week session, more than one a day.
The Indian government is under pressure to find ways to attract foreign investment after the rupee fell to a record low this week. Investors concerned about a paralysis in government decision making and the European sovereign debt crisis are selling riskier assets such as the rupee, potentially stoking inflation by raising the cost of imports.
India’s inflation exceeded 9 percent for the 11th straight month in October. India’s central bank last month forecast the economy will grow 7.6 percent in the year ending March 31, lower than the 8 percent it estimated previously.
The government’s move to approve the long-pending decision on retail despite opposition is an indication that the Congress-led government may be ready to open the economy in other areas such as aviation, pensions and insurance, according to G.V.L. Narasimha Rao, managing director of New Delhi-based Development & Research Services.
“The government seems serious about recovering some of the lost political ground,” Rao said. “How quickly they can press ahead with the next reforms depends on what sort of difficulties they face pushing retail through.”