* India revives plan to open retail sector to foreign
* Foreign carriers to be allowed stakes in Indian airlines
* Government likely to announce spending cuts, sources
* August inflation jumps to 7.55 pct, diesel hikes to push
* Protests flare across India against higher prices
By Manoj Kumar and Matthias Williams
NEW DELHI, Sept 14 After months of dithering on
the economy, India's beleaguered government roared back to life
in dramatic fashion on Friday, announcing big bang reforms as
part of package of measures aimed at reviving growth and staving
off a ratings downgrade.
A day after sharply increasing the price of heavily
subsidized diesel, the government said it was opening up its
supermarket sector to foreign chains and would allow more
foreign investment in airlines and broadcasters. It also
approved the sale of stakes in four state-run industries.
Facing the threat of having its credit rating downgraded to
junk, the Indian government has been running out of time to show
it is serious about fixing an economy that has been hard-hit by
a global economic crisis and political gridlock at home.
Underscoring the need for speed, India's inflation rate
jumped to 7.55 percent in August, mainly from higher
food prices, data showed on Friday.
"I believe that these steps will help strengthen our growth
process and generate employment in these difficult times," Prime
Minister Manmohan Singh said via Twitter.
Infighting in the fragile coalition government led by
Singh's Congress party had earlier forced it to shelve the
retail and aviation reforms, casting a shadow over India's
aspirations to join the world's leading economies.
Signalling that trouble still lies ahead, two major allies -
the Samajwadi Party and the Trinamool Congress party - demanded
a reversal of the retail reform and diesel price hike. The
government has backed down when faced with such pressure in the
The retail reform allows global firms such as Wal-Mart
Stores to hold a majority stake in a local partner and
sell directly to consumers for the first time, which supporters
say could transform India's $450 billion retail market and tame
In less than 24 hours, the government announced more
measures to liberalize the economy than in the past eight years
- a sign of the urgency felt in New Delhi after high spending
and low growth battered India's finances in recent months.
"These measures were pending for a long time and the
government has now shown political courage to push things
through," said Samiran Chakraborty, regional economist at
Standard Chartered Bank in Mumbai.
"This should buy some time and rating agencies may wait for
the final fiscal deficit number before deciding on India's
rating," he said.
But Singh will now need resolve and the support of powerful
Congress party boss Sonia Gandhi if he is to muster the
political will to withstand popular anger and pressure from
coalition allies who fear the reforms will cost them votes.
Street protests organized by opposition parties on Friday
against the diesel price increase, where effigies of Singh were
burnt, may be a taste of things to come.
The government's main coalition partner, firebrand populist
Mamata Banerjee, gave the government a 72-hour deadline to bin
the retail policy, but did not say if she would pull out of the
alliance if it ignored the ultimatum.
The measures are partly aimed at convincing the central bank
to lower interest rates to help revitalise the economy.
While economists do not expect the bank to reduce the cost
of borrowing when it meets on Monday - with the
higher-than-expected inflation reading seen as putting paid to
any chance of a rate-cut - they believe it is now more likely to
do so this year.
Singh is due to chair a meeting of government economists on
Saturday that could decide to implement budget cuts, a further
move to meet the bank's concerns about the fiscal deficit.
Singh's inability to convince allies and his own party to
support reforms to ease a high subsidy burden as growth slowed
had put India in danger of becoming the first of the big "BRICS"
emerging economies to see its credit rating downgraded to junk.
As finance minister in the 1990s, Singh was credited with
opening up the economy, but since taking office in 2004 he has
repeatedly put off or rolled back difficult economic decisions.
Earlier this year he vowed to revive the economy's "animal
spirits", but weeks of inaction followed as his
corruption-tainted government was consumed by an outcry over
sweetheart deals for coalfields.
The retail reform will allow foreign chains such as
Wal-Mart, Carrefour and Tesco Plc to own a 51
percent stake in supermarkets, opening the door to a market of
1.2 billion people with a rapidly growing middle class.
Previously, foreign firms were only allowed to operate as
"We are grateful that the government has realised and
appreciated the value that we will bring to strengthen the
Indian economy," said Raj Jain, president of Wal-Mart India.
"This policy change will allow us to connect directly with the
consumer and help save them money."
The government has championed the policy as a way to unclog
supply bottlenecks that cause a third of fresh produce to rot
before it reaches an Indian table. It is hoped global chains
will offer better prices to farmers by cutting out middle men,
while also pumping investment into cold storage facilities.
But it will also come with stiff riders. Foreign retailers
will only be allowed to set up in cities with a population of
more than 1 million, and must source at least 30 percent of
goods from local, small industries.
State governments will have the freedom to decide whether to
allow the supermarkets on their patch and the minimum investment
will be $100 million, Commerce Minister Anand Sharma said. Half
of that investment must be in rural areas.
The aviation reform will allow foreign carriers to take a
stake of up to 49 percent in local airlines, providing a
potential lifeline to the country's debt-laden airlines.