FDI pause wins peace in parliament, disappoints India Inc.

New Delhi : Thirteen days after what was seen as a major reformist move, the government Wednesday was forced to suspend its decision on foreign investment in retail following opposition from both within and outside the coalition, allowing peace to return to parliament but leaving India Inc. and sections of the middle class disappointed.

Finance Minister Pranab Mukherjee told an all-party meeting that the government had suspended the move till a consensus was reached with “stake holders” – state governments and political parties.

The opposition parties as well as the Trinamool Congress and the DMK – Congress-allies in the United Progressive Alliance (UPA) government – agreed to the formula and thus paved the way for smooth functioning of parliament that was logjammed since the winter session opened Nov 22.

In his brief statement in parliament, Mukherjee read out the resolution passed in the all-party meeting.

“The decision to permit 51 percent FDI in retail trade is suspended till a consensus is developed through consultation among various stakeholders,” a one-paragraph resolution passed in the meeting said.

The announcement comes nearly two weeks after the government decided to allow 51 percent foreign direct investment (FDI) in multi-brand retail and 100 percent in single-brand retailing. This would have allowed global supermarket brands like Wal-Mart, Tesco and Carrefour to set shops in India’s potentially lucrative domestic market estimated at $470 billion.

The government may have won peace in parliament. But its backing down on a key reform decision that was being closely watched by international investors has left it hugely embarrassed, indicating the government’s inability to go for an aggressive policy pursuit after months of what was seen “policy paralysis”.

The latest announcement gave way to despair in Indian industry that had gone euphoric over the government’s FDI decision, hailing it as the one that signalled a movement forward in the reforms process and that would help farmers, consumers and small and medium enterprises.

India Inc felt let down and said it sent wrong signals overseas.

“The government decision to hold back (FDI decision) is deeply disappointing,” said Harsh Mariwala, president, Federation of Indian Chambers of Commerce and Industry (FICCI).

“It is a highly regressive move,” Mariwala added.

Chandrajit Banerjee, director general, Confederation of Indian Industry (CII), said the backing down would have a strong negative impact on investors’ sentiment.

“FDI in multi-brand retail would have multifarious advantages to farmers, micro, small and medium enterprise, consumers and government alike,” he said.

Leading industry lobby Assocham said it was “a clear case of missed opportunity that will dent the country’s image as a global investment destination…. It would have created over 10 million new jobs in three years, curbed agricultural wastage, benefited farmers with better prices for their produce and brought down prices of many commodities for consumers.”

The ruling Congress put the blame on coalition compulsions. “In a coalition enough consultation may not be enough… We hope to arrive at some constructive resolution. In coalition, (one has) to walk that extra mile,” party spokesperson Manish Tewari said.

Experts are of the view that opposition to the FDI was for political reasons.

“The opposition is protesting for political reasons, at one point of time they were also supporting it. If not today, in future FDI in retail will be a realty,” Nisar-ul-Haq, who teaches political science at the Jamia Millia university, said.

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