India's retail reforms furore points to 'political ineptitude'

RISHIKESH, INDIA // The Indian government is holding an all-party meeting today in a last-ditch attempt to salvage plans to allow major foreign retailers into the country, but has already been forced into an embarrassing climbdown.

Allowing foreign companies to own a majority stake in multi-brand retail and 100 per cent stake in single-brand retail was the first economic reform introduced by the government of Prime Minister Manmohan Singh since it was returned to power in 2009.

But parliament descended into uproar after the plan was announced a fortnight ago, with opposition parties and even the government's coalition partners arguing that the arrival of Walmart and other foreign retailers would destroy small shopkeepers and achieve few of the productivity gains promised by the government.

With almost half the winter session of parliament gone and no useful business transacted, the government was forced over the weekend to promise opposition parties that it would put the reform on hold until a greater consensus is forged.

Having vowed that this session would prove it could still make tough decisions to rescue a slowing economy despite the wave of recent corruption scandals, this week's backtrack has left the government looking even more incompetent.

"Its ability to drive through any economic initiative is not just in doubt now, it has reached zero," said Ashok Malik, a political commentator based in Delhi. "With the fiscal deficit and current account deficit growing, we're looking at a potential downgrading of the Indian economy. That is a serious blow for a government that inherited a country in robust economic health."

The opposition Bharatiya Janata Party (BJP) has led the charge against the retail reform plan, despite embarrassing reminders that it supported foreign investment in retail prior to the 2004 elections.

Nonetheless, it is adamant that its disruption of parliament has been more than opportunism.

"This was not about scoring brownie points with voters," said Sanjay Kaul, a spokesman for the BJP. "The government never even tried to convince anyone that this was good for the country.

"We support competition. Our question is: why don't you allow foreign investment in infrastructure or education - areas in which India is really struggling? We are not short of retail outlets."

The government has tried to argue that capital investments from foreign retailers will create improvements in transport infrastructure. Vast amounts of fruit and vegetable perish because they are carried in open-air trucks along motorways ridden with potholes.

The retail industry agrees, but many in the BJP fear that the deep pockets of foreign retailers will allow them to dictate prices and force farmers to meet the needs of their higher-end customers at the expense of staple crops.

"Various conspiracy theories are going round that the government engineered this crisis to disrupt parliament and prevent the anti-corruption legislation being passed," said Mr Malik. "But sadly, I think it's just political ineptitude."