Confusion surrounds the reforms to foreign direct investment in Indian retail

Confusion surrounds the reforms to foreign direct investment in Indian retail

India's government has reportedly put its controversial reform of the country's retail sector on hold.

Uncertainty surrounds the plans to allow more foreign investment in India's retail sector after a partner in the country's coalition government announced the reforms had been delayed in a bid to win more political support for the policy.

On Saturday (3 December), Mamata Banerjee, chief minister of the state of West Bengal and leader of key government ally the All India Trinamool Congress party, said the Indian government had suspended a decision on the reforms "until and unless there is a consensus of all parties on the matter".

The All India Trinamool Congress party is the second-largest party in India's ruling coalition. The Indian National Congress party, of which Prime Minister Manmohan Singh and Finance Minister Pranab Mukherjee, has yet to make a formal announcement. However, The Times of India today quoted sources that said Mukherjee had told opposition leaders that a decision on reform would be put on hold until all political parties were consulted.

On 24 November, the Indian cabinet announced the reforms, which included a plan to allow foreign companies to own up to 51% of multi-brand retail stores, opening up the market to major retailers. Indian Prime Minister Manmohan Singh said the move will bring modern technology to the country, improve rural infrastructure, reduce produce waste and create jobs.

The announcement split business organisations in India, with some supporting the decision, while others claimed foreign retail giants like Wal-Mart Stores, Carrefour and Tesco would drive local, smaller retailers out of business.

Bannerjee's announcement hit shares of retail companies like Pantaloon Retail, Trent, Vishal Retail and Koutons, which fell by as much as 11% in trading today.

Since the reforms were announced there has been widespread protests around the country. The Indian parliament has also been forced to adjourn proceedings for several days.

On Friday, Arun Jaitley, of the opposition Bharatiya Janata Party (BJP), released a statement claiming that the government announced the reforms to deflect criticism about its economic track record.

He said: "The character of Indian economy is such that FDI in multi-brand will certainly hurt the economy. Structured international trade will displace jobs existing in present retail sector. This harsh reality has been experienced even in developed economies."