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BW Businessworld

Retail FDI Hopes Fading

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Shares of retailers fell sharply on 23 July after a freshly unified opposition emerged against the UPA government's efforts to open the Indian retail sector to foreign supermarkets like Wal-Mart Stores.  Stage is being set for stiff opposition to any government move on FDI in retail in the Monsoon session of Parliament beginning on August 8. Shares in companies including India's top retailer, Pantaloon Retail, Shoppers Stop and Tata Group's Trent, which are keen to tie up with foreign companies and gain fresh capital for their cash-strapped businesses, ended down between 2.5 and 8.1 per cent.

The latest protest comes during what is seen as a narrow political window for Prime Minister Manmohan Singh to push reforms seen as key to reviving India's flagging growth.

Markets have been anticipating quick action to relax investment rules and cut subsidies once the voting for the ceremonial post is out of the way. Analysts had already warned of a slump in investor confidence if anticipated measures do not materialise. Rupa Rege Nitsure, chief economist at the Bank of Baroda, had said last week: "This is a make or break situation for the government."

Commerce and industry minister Anand Sharma, who has been making efforts to forge a consensus on allowing FDI in multi-brand retail, refused to comment on the Left and Samajwadi Party opposing the move.

"I have not seen any letter and I will not comment," he told reporters, when asked about Samajwadi Party chief Mulayam Singh Yadav joining the Left parties in their opposition to the foreign direct investment (FDI) in retail.

The commerce and industry minister has been meeting and writing to several chief ministers seeking their support for implementing the Cabinet decision of November, 2011, which was put on the backburner, following a strong opposition from UPA key ally Trinamool Congress and several chief ministers of non-Congress ruled states.

When asked whether he would start the consultations again, Sharma said, "I have talked to everyone...".

Joint Opposition
In a joint letter to Prime Minister Manmohan Singh, SP chief Yadav, CPI(M) General Secretary Prakash Karat, CPI General Secretary S Sudhakar Reddy, Forward Bloc's Debabrata Biswas, JD-S' Danish Ali and RSP's Abani Roy had said that parties across the spectrum are opposed to opening FDI in the sector which employs about 40 million people.

Yadav also said there will be unanimity within the NDA on the issue and that his party will also reach out to other parties including UPA allies to put up united fight against this "biggest assault" on Indian economy.

Yadav, whose party has given a notice to Lok Sabha Speaker Meira Kumar seeking permission to raise the issue in House during the upcoming session, thanked Trinamool Congress chief Mamata Banerjee for halting the move on FDI earlier.

Yadav urged agriculture minister Sharad Pawar, the chief of another UPA ally NCP, to also "realise his responsibility" at a time when droughts are being reported from various states and oppose the FDI in retail saying it would exacerbate the problem by causing huge unemployment.

He said taking care of one's political future is right, but the NCP leader should also realise his responsibility.

The head of the Samajwadi Party, Mulayam Singh Yadav, who recently supported the government in the presidential election, wrote to the prime minister urging him not to proceed with reforming the retail sector and said it would result in job losses, according to media reports.

The Samajwadi Party was seen by markets as key to helping the government push through the policy. While the party does not support the reform, its leader, Mulayam Singh Yadav, told Reuters in June that he would not let the government fall over the issue.

The Samajwadi Party is not formally part of Singh's coalition, but lends it outside support. Efforts to reach party officials for comment on Monday were unsuccessful.

"This is particularly negative because the market was hopeful that the Samajwadi Party will support the government on this decision," said Neeraj Dewan, director, Quantum Securities.

"But a letter like this coming from them is very disappointing. Now it looks very unlikely the government will be able to make any announcement on retail before the monsoon session starts," he said, referring to the next sitting of parliament.

Continuing Protest
Opposition to supermarket reform is not new.

In December, the government backtracked on its decision to allow foreign supermarket chains to own 51 percent in India's multi-brand retail sector after a huge backlash, including from a powerful regional ally, the Trinamool Congress party.

Singh's ruling Congress party must balance the need to keep parties onside ahead of the next parliament session in August and for state elections later in the year.

The government has also come under intense pressure from investors to revive growth and it remains unclear whether the latest protest to supermarket reform will slow its progress.

"This is quite shocking, but the government does not have a choice to stall FDI (foreign direct investment) reforms at this time," said G. Chokkalingam, executive director and chief investment officer at Centrum Wealth Management.

"India needs foreign inflows for balancing the current account deficit, so bringing in FDI is the only option the government has," he said.

Commerce Minister Anand Sharma, whose department spearheaded retail reform, has written to state governments for support.

Sharma declined to comment when approached by reporters on Monday, saying he had not seen the letter, which was written jointly with other political parties.

(With Agencies)