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India Suspends Foreign Retail Plan Amid Protests PDF Print
Written by Bibhudatta Pradhan and Andrew MacAskill   
Wednesday, 07 December 2011 05:36

India suspended its decision to allow overseas companies like Wal-Mart Stores Inc. (WMT) to open supermarkets after protests by opposition parties and its allies paralyzed parliament. 

 

Source: Bloomberg

 

 

The government stalled its decision amid protests by the opposition and its allies that had forced repeated adjournments of parliament for the last week. Both houses of the assembly opened at 11 a.m. after Rajeev Shukla, junior parliamentary affairs minister, said parties had promised to allow them to function. 

“This is political suicide on the part of the Congress government,” said Surjit Singh Bhalla, chairman of New Delhi- based Oxus Fund Management. “The only conclusion one can draw is that this government has lost any moral authority to lead. It is completely inexplicable.” 

Singh’s government, which has been assailed by charges of graft and policy drift for more than a year, faced resistance to its decision to allow foreign direct investment in multibrand retail from two coalition partners, opposition parties and traders, who say the move will wipe out the jobs of small shopkeepers. The decision had been the first major change to Indian foreign ownership rules in more than five years. 

Shares of Pantaloon Retail India Ltd. (PF), the country’s largest retailer, fell as much as 6.1 percent in Mumbai trading and were up 0.4 percent at 187.1 rupees at 11:05 a.m. Shoppers Stop Ltd. (SHOP) declined as much as 5.7 percent and traded down 4.1 percent at 352.5 rupees. The benchmark BSE India Sensitive Index advanced 1 percent. 

Inflation Fix 

The major impact on stocks “had happened on Monday because over the weekend everyone already knew this is going to be suspended,” Gautam Duggad, a Mumbai-based analyst with Prabhudas Lilladher Pvt., said in a telephone interview. 

Arti Singh, a spokeswoman for Wal-Mart in India, and Mohan Shukla, director of corporate affairs for Carrefour in India, did not answer calls to their mobile phones. Kishore Biyani, founder and managing director of Pantaloon was not immediately available for comment. 

Singh and Commerce Minister Anand Sharma say the proposals to allow foreign investment in India’s retail sector would check inflation above 9 percent by reducing the amount of farm produce that currently rots before it can be sold and bring better prices for farmers. 

In an attempt to kick start an economy that expanded at the slowest pace in two years in the quarter ended Sept. 30, Singh had 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. 

Reforms ‘Over’ 

“It is very clear now that the reform process is over until we have a new government, a new prime minister,” said Laveesh Bhandari, a director of Indicus Analytics, an economics research firm in New Delhi. “The government is so weak they will give up on anything.” 

The U-turn on retail may allow the government to pass legislation this parliamentary session that will create a new anti-graft agency with enhanced powers, a demand of activists behind nationwide protests that swept the country in August. 

Anna Hazare, a social activist who went on a 13-day hunger strike, has vowed to resume his rallies if the government fails to pass the bill in the parliamentary session that ends Dec. 21.