Govt suspends FDIs in retail

The government suspended plans to open its $450 billion supermarket sector to foreign firms such as Wal-Mart Stores Inc (NYSE:WMT - NewsWMT.N), backtracking from one of the government's boldest reforms in years in the face of a huge political backlash. The retreat, within two weeks of the policy being announced, is another nail in the coffin of Prime Minister Manmohan Singh's economic reform programme, just as Asia's third-largest economy suffers from slowing growth and falling investment.
It is also likely to cement a view that India is an emerging market slowcoach compared to other so-called BRICS nations such as China and Brazil.
"The image, the credibility of the government is lost," said D.H. Pai Panandiker, head of the RPG Foundation think-tank.
Both ruling Congress party allies and opposition parties, fearing job losses for millions of small shopkeepers, had disrupted parliament for two weeks in protest, stalling some key bills such as increased food subsidies for the poor.
"The decision to permit 51 percent FDI in multi-brand retail trade is suspended until a consensus is developed through consultations among various stakeholders," Finance Minister Pranab Mukherjee said in a statement on Wednesday.
On the upside, putting the retail plan on hold will get parliament back to work, allowing the government to pass other key reforms.
The policy would have allowed foreign firms such as Wal-Mart, Carrefour (:CARR.PACARR.PA) and Tesco (LSE:TSCO.L - NewsTSCO.L) to own 51 percent in supermarkets, with the government hoping this would ease high inflation, and draw in investment to improve supply-chain infrastructure and create jobs.
A parallel change allowing single brand foreign retailers, for example Sweden's Ikea, to fully own ventures in India was not suspended, a cabinet minister said.
"The opposition parties have not opposed 100 percent FDI in single brand retail. So there is no ambiguity," the cabinet minister, who declined to be named, told reporters.
The government gave no timeframe for reviving the supermarket reform. Analysts and industry hands said deep political divisions over the issue could keep it on the back-burner even beyond general elections in 2014.
"The sense we get is that the policy has been moved to the cold storage for quite some time now. In fact, there is a growing sense that this might even move beyond and happen post elections," said Thomas Varghese, CEO of Aditya Birla Retail, which owns India's More supermarket.
Shares in Indian retailers were mostly flat on Wednesday, after falling sharply earlier this week when news of the reform "pause" leaked out.
"The business community is frustrated anyway. In fact, many of the companies are cash rich, but still don't want to invest. The decision-making process by the government has almost come to a stop," said Panandiker.
The Federation of Indian Chambers of Commerce and Industry, a business group, called the decision "deeply disappointing".
It proposed watering down the plan to limit FDI in supermarkets to 49 percent, make the big retail groups source more produce from small businesses and only allow foreign store openings in cities with at least 1.5 million people.
One senior government source said it was "premature" to say the retail plan would be watered down in the future.
POLITICS RULES
With state elections next year, including the politically crucial state of Uttar Pradesh, the window for reform may be closing quickly. One leftist party called the suspension a "virtual rollback".
"From now until the UP elections, I think it will be a stalemate again, except for populist measures," said Panandiker.
The retail plan may not be dead yet. Three years ago, Singh pushed through a civil nuclear agreement with the United States despite initial defeat at the hands of allies and rivals that almost brought down his government.
But the rapid about-turn and obvious disarray among ministers has raised questions as to who is running India.
Singh is 79 and his cabinet are mostly septuagenarians seen as out of touch with this globalising nation. Sonia Gandhi, Congress party chief and India's most powerful politician, suffers from an undisclosed illness reported to be cancer.
The government has stumbled amid corruption scandals this year and has not passed a single major reform bill.
"Prime Minister Singh and his colleagues, economically, they are very smart, but in a democratic system, particularly when you have a coalition, you also need to be politically competent," said Anil Gupta, an INSEAD business school professor.
The economy grew at its weakest pace in more than two years in the quarter to end-September, revealing the toll that stubborn inflation, rising interest rates and crisis-hit global capital markets are having.

FDIs in retails not rolled back, only held back: Pranab

The Centre is trying to break the Parliament deadlock over the decision to allow Foreign Direct Investment (FDI) in retail with Union Finance Minister Pranab Mukherjee calling up senior Bharatiya Janata Party (BJP) and Leader of Opposition Sushma Swaraj to discuss the issue.
Pranab appealled to Sushma to allow normal functioning of Parliament but the BJP leader made it clear that the Opposition wanted a clear statement from the Government in Parliament on its stand on FDI in retail.

After the meeting sources told that the Opposition has conveyed to the Government that it was okay with the idea of putting FDI in retail on hold till a consensus was reached.

Senior BJP leader Yashwant said, "Government is now trying to build consensus. It should have consulted allies and Opposition before taking the decision.

Pranab Mukherjee also met CPI (M) leader Sitaram Yechury.

Yechury is understood to have told the Finance Minister that an all-party meeting be convened before the next sitting of Parliament on Wednesday during which the parties could be informed about the decision.

An announcement could then be made in Parliament, the sources said, adding that the all-party meeting could be held on Wednesday morning before the proceedings begin.

Mukherjee had last week told an all-party meeting, which had asked the government to reverse the FDI decision, that he would get back to them after he consulted the Prime Minister and the Union Cabinet which had taken the decision.

Yechury is understood to have told Mukherjee on Monday that it would be in fitness of things that all political parties are informed about keeping the decision to allow 51 per cent FDI in retail in abeyance.

The opposition, however, is still firm on having a discussion in Parliament on major issues like price rise and blackmoney under rules which entail voting, the sources said.

Key United Progressive Alliance (UPA) constituent and West Bengal Trinamool Mamata Banerjee is the one who has spoken out so far on 'assurances' given by Pranab Mukherjee to her on deferring FDI in retail. BJP and JDU are asking for a total roll back of FDI in retail from the government or an adjournment motion.

As the government looks for a solution to the impasse on FDI, Congress General Secretary Digvijaya Singh continues to target the BJP.

"The BJP is trying to destabilise the UPA government by raising the issue of FDI in the retail sector as it was unable to forget its successive defeats in the 2004 and 2009 general elections," he said.

Singh has accused the BJP of adopting double standards on the issue as its own election manifesto in 2004 had advocated FDI in retail.

FDI(Family Direct Investment) approved

The noisy Indian democracy has scripted a silent revolution. The politicians have arrived at a consensus on FDI policy. That is Family Direct Investment. Top hierarchy of political parties can have 100 percent FDI, allowing for hereditary route to the coveted organizational positions.
Unlike its economic counterpart, where 51 percent Foreign Direct Investment proposal in multi-brand retail met with stiff resistance, the political FDI policy was widely welcomed. “In fact, there are no reforms involved here. It is essentially the reaffirmation of faith in the long cherished value system of respecting the dynastic rights of ruling families,” a Congress spokesman said.
Both the national leaders and the regional chieftains were equally excited about the prospect of giving the long-held tradition a legal and constitutional framework. According to the policy draft, cleared by the union cabinet, the sons and sons-in-law of the incumbent party chiefs will have birthright over the post which cannot be challenged in any court of law. The word “sons-in-law” was included in the definition of the family to please the southern satrap and TDP chief N Chandrababu Naidu.
The political observers were quick to point out that this FDI policy was a masterstroke by the UPA leadership to get its sulking allies on board. “The DMK, NCP, RLD and MIM have extended their whole-hearted support to the policy. Even the potential allies like Samajwadi Party and RJD have pledged their support to us off the record,” the spokesman said.
Even some of the NDA allies like Shiv Sena and Shiromani Akali Dal and those in the no-man’s land like JD (S) and BJD were willing to cross over to UPA camp for upholding the great Indian family values. The development has also brightened the prospect of home-coming for YSR Congress President Y S Jagan Mohan Reddy who had walked out of the parent party for not applying the established family traditions in his case.
Asked about the “party with a difference” whose tallest bachelor leader has not named his heir apparent, the Congress spokesman quipped “For them, family means Parivar. Sangh Parivar, that is. So, it is the Sangh that decides the successor.” Similarly, the “ideological parents” from the foreign soil will guide the destiny of Indian communist parties, he reasoned.
While allowing 100 percent FDI in the top echelons of the party apparatus, the new policy, however, stipulates that 30 percent of the menial jobs like mobilizing donations and managing the voters must be sourced to the locally available small and medium thugs.