Dean Best

Best bits: India "bites the bullet" on retail reform

By Dean Best | 17 September 2012

Indian PM Singh reportedly told Cabinet it needed to "bite the bullet" on reform

Indian PM Singh reportedly told Cabinet it needed to "bite the bullet" on reform

If at first you don't succeed....

Late on Friday, India's government launched its latest attempt to relax regulations on its retail industry and allow for more foreign investment in the sector. In December, the Indian government had to shelve plans to allow overseas investors to own 51% of multi-brand retailers amid opposition from some of its states, politicians and local retailers. 

The government, led by Indian Prime Minister Manmohan Singh, pledged then to look for "consensus through consultation" and, after discussions with state governments, farmer representatives, the food processing sector and the retail industry, New Delhi has outlined its fresh plans for reform.

The second attempt at reform includes a range of conditions, including, crucially, that states have the power to block the opening of multi-brand stores backed by foreign capital.

Predictably given the wave of opposition last year, the announcement was met with criticism, including from within the ruling coalition. "We are not supporting these anti-people decisions," Mamata Banerjee, founder and leader of All India Trinamool Congress, Chief Minister of West Bengal and member of India's ruling coalition, posted on Facebook. "We are very much serious about these developments and ready to take hard decisions if these issues are not reconsidered.

Banerjee, said to be a key reason why India's government suspended its previous attempt to relax the FDI rules in December, added: "Yes, we need reforms. But reform does not mean to sell out everything to satisfy some sections of individuals. In a democratic set up, reforms must reach upto the poor and common people and the beauty of democracy lies on realizing its responsibility towards the common people."

Leftist parties have called for a national strike on Thursday in protest at the plans and at other reforms announced last week, including a hike in diesel prices.

However, the Indian Prime Minister called on the country to back the plans. "I urge all segments of public opinion to support the steps we have taken in national interest," his Twitter page read on Friday.

"The Cabinet has taken many decisions today to bolster economic growth and make India a more attractive destination for foreign investment. I believe that these steps will help strengthen our growth process and generate employment in these difficult times."

Singh has faced criticism from at home and overseas at the perceived lack of economic reform in India. In July, Time magazine labelled the Indian Prime Minister "the under-achiever".

On Saturday, The Times of India quoted sources at a crucial cabinet meeting ahead of the announcement who said Singh had argued the government had to "bite the bullet". The Prime Minister said: "If we go down, we have to go down fighting."

After the announcement, there was support from India's main business organisation. "This reflects the resolve of the government to usher in a retail revolution in the country and also signal to the investor community that India is committed to furthering reforms," said R. V. Kanoria, president of the Federation of Indian Chambers of Commerce and Industry."

Wal-Mart Stores, which already has a wholesale venture in the country and would look to open consumer-facing outlets, said the reforms would benefit consumers and farmers.

"This policy change will allow us to connect directly with the consumer and save them money," Raj Jain, president of Walmart India and MD of local venture Bharti Walmart said.

"By being stores of the community, we will also help them live better. We are willing and able to invest in back-end infrastructure that will help reduce wastage of farm produce, improve the livelihood of farmers, lower prices of products and ease supply-side inflation. Through these, and several other initiatives, we hope to make a positive impact on the lives of the people of India."

Will the reforms stick? Could they again be derailed by opposition? One cannot be sure. India is an unpredictable market. Banerjee is reportedly set to meet colleagues tomorrow to decide her next steps.

On paper, the government's willingness to add conditions to its reforms may soothe some concerns, despite the continued vociferous opposititon in some quarters. 

What appears certain is that only parts of India will become home to foreign-owned multi-brand outlets, with individual states free to ban the opening of such stores. Even the official announcement from the Cabinet on Friday indicated at least seven states had "reservations" about the reform. The chief minister of one of those states, the eastern state of Bihar, took to Facebook to criticise the plans.

"If FDI comes in infrastructure it's okay, but not in agriculture. They want our markets. Shiny markets won't help farmers. We won't allow this in Bihar [state]. FDI will make the farmer a slave in the end," Nitish Kumar wrote.

One leading analyst told just-food he was confident the reforms will be implemented this time around. "What is very important for us to think about is what is in the interest of the country," Deloitte Haskins & Sells partner Anil Talreja said. "The fact the government has come up with this once again clearly indicates it has been a thought-through process."

Sectors: Emerging markets, Mergers & acquisitions, Retail

Companies: Wal-Mart Stores

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