India retail reforms face broad alliance of foes
NEW DELHI: The ruling Congress party has rolled out its big guns to defend the move to let the likes of Walmart set up their franchises in India, but they are confronting an alliance stretching across the political spectrum.
Prime Minister Manmohan Singh’s left-leaning government announced in September that it was lowering the bar for foreign firms to operate in sectors ranging from retail to insurance, in a bid to revive its fortunes before elections in 2014.
But by leaving it up to individual states to decide whether they want to implement them, analysts say the retail reforms are in danger of fizzling out as opponents ranging from communists to right-wing nationalists mobilise resistance.
Congress party president Sonia Gandhi and even her son Rahul, the scion of the Nehru-Gandhi dynasty, spoke at a mass rally in Delhi on Sunday to espouse the benefits of the reforms before tens of thousands of supporters.
“We need economic reforms because only when businesses operate well will there be progress, and then we can run programmes to benefit the poor,” said Rahul whose father, grandmother and great-grandfather all led India.
But elsewhere in the country, a broad array of Congress opponents is vowing to hinder the implementation of the changes.
If anywhere in India might be expected to welcome major international firms, it should be Gujarat, a state whose relative prosperity over the last decade has been built in part on its success in attracting the likes of Ford and Shell.
Gujarat Chief Minister Narendra Modi, a leader of the Hindu nationalist Bharatiya Janata Party (BJP), has even instigated a campaign called “Vibrant Gujarat” to draw in investors.
In a recent interview with AFP, Modi’s comments that “only economic reforms can improve the lives of millions across India” appeared to echo government policy, before he promptly slapped down the proposals.
“The federal government did not take our opinion before introducing the reform,” said Modi whose BJP is hoping to unseat Congress in 2014.
The BJP says an estimated 50 million “mom and pop stores” will go bust under Singh’s plans to let foreign firms open supermarkets for the first time in India.
While the opposition from the right is inspired in part by an instinctive desire to support small businesses, the left has a deep suspicion of Western giants.
“We have made our stand very clear that FDI (foreign direct investment) in retail will be a disaster. We cannot sell Indian markets to foreign companies,” Brinda Karat, leader of the Communist Party (Marxist), told AFP.
Major multinationals such as Coca-Cola and McDonalds were effectively locked out of India until as late as the mid-1990s before the government began to open up the economy.
According to the Nobel prize-winning economist Joseph Stiglitz, India has an unusually large entrepreneurial class for a developing nation which “raises the question as to why India needs foreign entrepreneurs”.
“To me, as most economists say, a little competition is good. On the other hand, the worry is that a company like Walmart may owe some of their success to its power and ability to drive down prices,” he told India’s Outlook magazine.
To date, only 12 of the 28 states in India are in line to implement the new rules allowing in foreign supermarkets.
But while the opposition of state leaders such as Modi may be politically expedient, analysts say they face a complex dilemma as they strive to integrate their local economies with the global economy.
“The BJP is opposing the FDI in the retail sector only to appease the small traders and business houses who traditionally vote for their party,” said Ranjan Nathani, an economics professor at Delhi University. “But they forget that FDI in retail is the need of the hour to sustain growth.”
There is little doubt among all parties about retail’s huge potential for growth, even if it is one of the least evolved sectors.
Foreign firms are currently allowed to operate but only when selling single brands.
According to the Investment Commission of India, the influx of multi-brand supermarkets should help the retail sector to grow to almost three times its current levels, to $660 billion a year by 2015.
Populist regional leaders such as Mamata Banerjee, who heads the state government in West Bengal, have railed against FDI and other reforms for being “anti-people”. She recently pulled her Trinamool party out of Singh’s coalition.
But Pramod Yadav, a professor at the Adani Institute of Infrastructure Management in Gujarat’s main city Ahmedabad, says opposition from local leaders could torpedo the reform process and trigger “economic disaster”.
“The success of every state leader now lies in the choice they make: economic compulsion or political calculation,” he told AFP.
Walmart has said it aims to launch its first retail store in India within the next 18 months. Spokesmen for Tesco and Carrefour declined to give details about their plans, saying the issue was at a sensitive stage.