Prime Minister Manmohan Singh’s plan to boost foreign investment was shot down, as India puts their original decision to allow superstores like Wal-mart (NYSE:WMT) and other large retailers to open stores, on hold. What caused this change in plans? Mostly protests and outcries from the smaller mom and pop stores and their supporters that feared the big name stores would crush their business.
Surjit Singh Bhalla, chairman of New Delhi- based Oxus Fund Management was quoted to say “This is political suicide on the part of the Congress government. The only conclusion one can draw is that this government has lost any moral authority to lead. It is completely inexplicable.”
Parliament had been disrupted for two weeks, not only affecting this issue but other important ones as well, such as increased food grants for the poor. The only upside to this suspension is Parliament being able to get back to business in getting issues such as the food grants taken care of. But it is impossible not to see that Parliament being allowed to go back to work, now that opposition has gotten their way, is clearly a case of political bullying.
The policy that was proposed would allow foreign companies such as Wal-mart, and Tesco (NASDAQ:TESO) among others, to own 51% in supermarkets. This plan was an attempt by the government to create jobs by improving supply-chain infrastructure because of the appeal it would have to investors, therefore reducing the strain of inflation. But the existing shop owners saw it as certain death for their own businesses and the protest began. The government has not, however, stopped a policy that will allow single brand retailers such as Nike and Ikea to own 100% of their businesses, whereas before they were only allowed 51%.
The problem with bowing to the protesters wishes is the credibility the government has lost by such a move. Saloni Nangia, senior vice president and head of retail and consumer goods at Technopak, a consulting firm based in New Delhi, stated “This is extremely disappointing for both international and Indian investors. This has been under discussion for more than 10 years. The government has given in at a weak moment. It raises doubts about the Indian government and what is its focus when it comes to the economy and various stakeholders.”
While some of the opposition stated the new policy would have hurt local farmers and traders, Tesco of the U.K. states that they have actually HURT their local farmers and traders as well as consumers and robbed them of a missed opportunity, by barring a policy that would have improved the issues going on with inflation and trading.
Thomas Verghese, the head of the retail committee at the Confederation of Indian Industries, says that He doubts that this government will have the courage to pull this issue out of cold storage. More than likely it will remain on suspension for others to deal with in future elections, if at all.
India’s economy has grown at it weakest rate in over two years, amid stubborn inflation, interest rates that keep rising, and the hit that global capital markets are experiencing. The government has not passed one major reform bill at all this year and very few since the second election in 2009 in what critics are calling policy paralysis. Issues like these make many wonder just who is running India?