Indian Government Wins Test of Pro-Market Reform Agenda

Wednesday, 05 Dec 2012 09:02 AM

 

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NEW DELHI — India's minority government survived a vote in parliament on Wednesday on a contentious move to allow in foreign supermarket chains, delivering a major boost to its pro-market reform agenda.

After two days of stormy debate, lawmakers in the lower house supported the government and defeated an opposition motion against the decision to open up the highly protected retail industry to foreign firms such as Wal-Mart.

The U.S. retail giant aims to be one of the first to set up foreign-owned megastores for consumers in India, a prospect that has raised fears among opposition parties of small shopkeepers being put out of business.

The vote saw the motion defeated by a margin of 35, handing the Congress-led government a victory of 253 votes against 218 in its first major test since it lost its majority in September.

A loss for the left-leaning coalition of Prime Minister Manmohan Singh would not have reversed the policy, but it would have dealt the government a severe blow and would have set back efforts to push through other reform measures.

Heavy Industries Minister Praful Patel had told parliament on Wednesday that foreign direct investment "will not destroy local markets."

"It is a clear economic subject and we should realize that globalization will need India to open its business to all the players in the world," he added.

After years of slow policymaking, Singh's government unveiled a string of changes in September, throwing open key sectors such as retail and aviation while proposing greater foreign investment in insurance and pensions.

This led to the departure of the populist coalition member the Trinamool Congress from the state of West Bengal, whose decision to quit the ruling alliance left the government in a minority and reliant on outside allies.

The pro-market push, which includes efforts to cut subsidies, comes as India faces a sharply slowing economy, a gaping fiscal deficit, and high inflation, which has stoked pressure on an administration already under fire for corruption.

During the debate, opposition MPs lambasted the idea of foreign supermarkets in India, saying they would harm traditional family-owned shops where most Indians do their shopping as well as hit farmers.

Mulayam Singh Yadav, an ally of the government but an opponent of foreign supermarkets, invoked the memory of independence leader Mahatma Gandhi who burned foreign cloth as a protest against British products.

The parliamentary leader of the main opposition Bharatiya Janata Party (BJP), Sushma Swaraj, who proposed the non-binding vote on the retail reform, appealed to the government to fight for Indians, "not foreigners."

After the lower house voted on Wednesday, the upper house is set to follow on Friday.

Supporters of the arrival of chains such as Wal-Mart, Tesco, and Carrefour say it will revolutionize shopping in India, with consumers offered cheaper food in large, modern supermarkets, as well as improving the wasteful supply chain.

Among conditions imposed on foreign supermarkets, they will have to invest a minimum of $100 million, open stores only in towns with a population of more than 1 million, and source 30 percent of produce from India.

Previously the groups were restricted to owning wholesale operations in India.
Wal-Mart, the foreign chain seen as the most keen to tap India's vast consumer market of 1.2-billion people, has since been tripped up by two separate investigations in the country.

The company is carrying out an internal probe into possible corrupt payments by its local joint venture, while the government is investigating whether it broke the previous rules barring investment in the retail sector.

© AFP 2014

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