Singh Wins Retail FDI Vote in Boost to Flagging Policy Push
Indian lawmakers endorsed in a vote the government’s decision to allow the entry of overseas retail chains, boosting Prime Minister Manmohan Singh’s bid to push through policies to revive a slowing economy.
While 253 members of the 545-member of the lower house supported the government plan yesterday, 218 voted against. Singh’s Congress Party-led minority coalition emerged victorious as two regional parties that oppose the arrival of foreign supermarkets walked out rather than vote with ideological rivals.
The September move to enable companies like Wal-Mart Stores Inc. (WMT) and Tesco Plc (TSCO) to open stores in India didn’t require parliamentary approval to become law. Singh’s government agreed to a vote to end protests that had stalled legislative business as it seeks to push through the country’s biggest embrace of foreign investment in a decade.
FDI in retail “sends a clear signal that India is open for business; the impact on investor confidence is the biggest in the short term,” said Tushar Poddar, chief India economist at Goldman Sachs Group Inc. in Mumbai. “For every $1.7 dollar of investment in retail you generate $1 of GDP growth. In retail you get more bang for your buck because it has so many linkages.”
As the debate began Dec. 4, opposition lawmakers contended that the policy would throw small shopkeepers out of work, further impoverish farmers and hurt consumers. Ruling coalition members defended the retail plan, which can be rejected by state administrations.
“Don’t spread panic that” supermarket chains will wipe out small retailers, Commerce Minister Anand Sharma said in parliament yesterday, arguing that convenient neighborhood shops will survive. Foreign investment will help farmers get a better price for their goods and cut the amount of food that currently rots before it reaches the market, he said.
Indian stocks ended a two-day advance that propelled the benchmark index yesterday to a 19-month high in the run up to the vote. The BSE India Sensitive Index (SENSEX), or Sensex, declined 0.7 percent today to 19,247.91 as of 9:37 a.m. in Mumbai.
India’s economic expansion slowed last quarter to match a three-year low as growth in domestic spending and exports moderated, adding pressure on the government to extend the policy overhaul to spur investment.
Singh’s push to lure more foreign investors has been hurt by the widest budget deficit in major emerging nations. Parliamentary opposition to his drive to open industries to overseas companies is clouding the outlook as inflation above 7 percent limits room for interest-rate cuts.
Parties Walk Out
The 10-party ruling alliance, which is as many as 24 seats short of a majority in the lower house of parliament, was boosted by Mayawati’s Bahujan Samaj Party and her leading opponent, Mulayam Singh Yadav’s Samajwadi Party. Both left the chamber before voting as they have in the past, and are likely to have driven a hard bargain for their grudging support.
The government, which faces an even stiffer contest in the upper house, will be seeking similar backing when lawmakers there vote. The debate in the house will begin today.
The retail policy will enable Wal-Mart, Carrefour SA (CA) and Tesco to step up their presence in the world’s second-most populous nation to tap a market that Technopak Advisors Pvt. estimates will expand to $725 billion by 2017.
Opposition parties have used the supermarket policy to attack the government as it seeks to recover its poise after two years during which it was attacked over corruption allegations and weak leadership, and just over a year before the next election.
“If FDI is good for the country, then why is it optional in the states?” said Murli Manohar Joshi of the BJP yesterday, adding foreign companies will destroy local retailers. “Sacrifice yourself, not the country’s interests,” he told the government.
The result may strengthen Singh’s resolve to overcome opposition to his plans to allow foreign companies to hold bigger stakes in insurance firms and for the first time permit overseas investment in pension funds. These two decisions need parliamentary approval.
Singh’s initial attempt to woo overseas companies to modernize India’s retail market stalled in December as his biggest ally, Mamata Banerjee’s Trinamool Congress, objected. Banerjee pulled her party from the government in September as the policy was resurrected as part of a legislative push after business leaders demanded action to bolster the faltering economy.
“Most reforms in India have happened when we’ve been pushed to the wall,” said Kishor Ostwal, managing director at CNI Research Ltd. (CNIR) in Mumbai. “This is one such occasion.”