India's plan to open retail sector hangs in balance

Thu Nov 24, 2011 4:06am EST

* Key government coalition ally opposes proposal

* Reform would bring investment, but risks public backlash

* Small shopkeepers protesting feared job losses

By John Chalmers

NEW DELHI, Nov 24 (Reuters) - The Indian government's plan to open its supermarket sector to global retailers hung in the balance on Thursday as political opposition to the long-delayed reform mounted just hours before a cabinet meeting called to approve it.

Multinationals such as Wal-Mart Stores Inc have eyed India for years as the last frontier in mass retailing -- a market estimated at $450 billion a year, but still dominated by traditional family-run and corner stores.

Allowing foreign retailers to take stakes of up to 51 percent in supermarkets would attract much-needed capital from abroad and ultimately help unclog supply bottlenecks that have kept inflation stubbornly close to a double-digit clip.

However, a heavyweight party in the coalition government said it will oppose the proposal at the cabinet meeting, raising the chances that yet another of Prime Minister Manmohan Singh's reform plans would be put on ice.

"We are completely opposed to it," said Dinesh Trivedi, the cabinet representative of the Trinamool Congress party, on which Singh's Congress party depends for a majority in parliament.

"My suggestion in the cabinet (meeting) will be that an all-party meeting should be called to discuss this sensitive matter before taking it up in the cabinet," Trivedi told reporters.

Trade minister Anand Sharma said there was "a broad-based consensus" in favour of the reform within the cabinet, and he would meet the leader of Trinamool Congress, Mamata Banerjee, to persuade her to throw her weight behind it.

However, another of her senior party officials said he had the impression Singh was trying to "bulldoze" the reform through.

"The foreign companies will start by selling cheap to attract people and then, within a year and half, increase prices. This will hurt the poor and all the small traders. This has to be properly discussed more openly," another said.

POLITICAL RISK

Political opponents of the proposal, with an eye to the ballot box, argue an influx of foreign players -- which could include Carrefour and Tesco Plc -- will throw millions of small traders out of work in a sector that is the largest source of employment in India after agriculture.

"While there has been a lot of consensus, in my view, in the government, there's been less of a consensus in the political class," Montek Singh Ahluwalia, deputy head of the Planning Commission, told CNN-IBN TV this week.

"And, therefore, it's not surprising they have a few more consultations and take a little more time."

Opening up the retail sector would be one of the boldest moves to come from Singh's government, which has been tripped up by a string of corruption scandals over the past year and mired in a policy paralysis at a time of slowing economic growth.

India currently allows 51 percent foreign investment in single-brand retailers and 100 percent for wholesale operations, a policy that the world's top retailer Wal-Mart and Carrefour, among others, have long lobbied to free up further.

A group of senior civil servants approved the proposal to open the multi-brand sector to foreign players in July, although it recommended strict local sourcing requirements and minimum investment levels.

Even if there are stringent caveats on foreign investors, the government would still be taking a big political risk ahead of elections in the most-populous state, Uttar Pradesh, next year.

India's biggest listed company, Reliance Industries , was forced to backtrack on plans in 2007 to open Western-style supermarkets in Uttar Pradesh after huge protests from small traders and political parties.

The main opposition Bharatiya Janata Party has vowed to oppose opening the sector, and domestic traders have taken to the streets this week amid talk the reform could be imminent.

Praveen Khandelwal, Secretary General of the Confederation of All India Traders (CAIT), which staged protests against the policy this week, said foreign supermarkets would hurt his members.

"Definitely, there will be large scale unemployment," he said.

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