INDIAN PRIME minister Manmohan Singh’s administration caved in to opposition pressure yesterday by suspending plans to open the $450 billion retail sector to foreign supermarkets like Walmart and Tesco.
Finance minister Pranab Mukherjee told parliament that foreign direct investment (FDI) was “suspended until a consensus is developed through consultations with various stakeholders”, rowing back on its earlier reiterations of implementing it at any cost. Mr Mukherjee declined to elaborate on how long that process would take or whether the policy would be implemented.
Sushma Swaraj, parliamentary leader of the main opposition Hindu nationalist Bharatiya Janata party which led the fight against FDI reform, gloated over its victory.
“Bowing to popular sentiment is not a defeat for the government,” Ms Swaraj patronisingly said. “It is a great victory for democracy.”
Ruling Congress party MPs too admitted the pullback from FDI was a “damaging blow” to Mr Singh’s government. Last month, it had declared it would push through the reform.
This renunciation also increases pressure on Mr Singh’s crisis-ridden government.
Market analysts said the FDI suspension was yet another example of the government’s policy paralysis and inconsistency that has made overseas investors apprehensive about India.
The initial decision to allow foreign companies to own 51 per cent of supermarkets in major cities and 100 per cent of single-brand stores was hailed by the local business community across India.
The government claimed that foreign retailers would ensure better prices for farmers by cutting out middlemen and upgrading the country’s road, storage and transportation infrastructure. It would also ensure lower prices for the consumers, create new jobs and reduce crop wastage. But opposition parties claimed it would signal the end of local mom-and-pop stores that are the heart of Indian retailing.