Foreign investment in India at stake as parliament resumes amid protests

Published: November 20, 2012

Indian employees welcome Bharti Wal-Mart President, Managing Director and CEO Raj Jain (unseen) following an inauguration ceremony of a newly opened Bharti Wal-Mart Best Price Modern wholesale store in Hyderabad on Sept. 26, 2012. The government unexpectedly revived long-delayed plans to open up the retail, aviation and broadcasting sectors to more foreign investment. Noah Seelam/AFP/Getty Images

BIBHUDATTA PRADHAN
BLOOMBERG

Indian Prime Minister Manmohan Singh faces an opposition onslaught when parliament resumes this week, with rivals vowing to block the biggest opening to foreign investment in 10 years as the government bids to stoke growth.

The Trinamool Congress party, a former Singh ally, said it will push for a vote of no confidence in the government when parliament meets Nov. 22 over its move to allow foreign supermarket chains to hold a majority stake in retail outlets. The main opposition Bharatiya Janata Party is planning a nationwide protest tomorrow, targeting Singh’s administration over rising prices, graft and the retail plan.

Singh’s Congress party needs to rally its 10-member ruling coalition and win support from parties outside of the minority government to push through steps that will also enable foreign companies to hold bigger stakes in insurance firms and invest in the pension sector. Failure to win lawmakers’ support could extend 24 months of policy paralysis that have contributed to growth slowing to near a three-year low and threaten to undermine the government ahead of elections due by May 2014.

“If these important bills get through, the market will cheer as they have been waiting for this for a long time,” said Mumbai-based U.R. Bhat, managing director of Dalton Capital Advisors India, a unit of Dalton Strategic Partnership LLP in London which manages $2 billion in assets globally. “If they don’t, the government’s credibility will be lost. They will be perceived as a lame duck.”

Overseas funds boosted holdings of rupee debt to a record $32.9 billion last week, following Singh’s proposals to open up the economy and improve public finances. India’s economic expansion will accelerate to 6 percent next year from 4.9 percent in 2012, helped by a boost to confidence from the policy revamp, the International Monetary Fund said last month.

The government is reaching out to political parties to win backing for its legislative agenda, Finance Minister Palaniappan Chidambaram said Nov. 16. Chidambaram, whose appointment for a third term in charge of the finance ministry in July helped Singh, 80, convince party colleagues to back the reform agenda, said he hoped the parliament’s winter session would be “a productive one.”

Trinamool, headed by West Bengal Chief Minister Mamata Banerjee, quit in September as Singh’s largest coalition ally to protest the retail opening, saying the move would force small shopkeepers out of business and drive down prices paid to farmers for their produce.

While the BJP-led National Democratic Alliance wants a debate on the retail plan in parliament followed by a vote, it hasn’t decided on backing a no-confidence vote, BJP spokesman Ravi Shankar Prasad said after a meeting with allies.

The BJP is yet to decide who will lead it into the next election. Gujarat Chief Minister Narendra Modi hopes to boost his chances with a third successive victory in state assembly polls next month. The party is also being convulsed by allegations of corruption leveled against its president by an anti-graft group.

Singh has met with leaders of two parties whose backing could help him head off defeat in a no-confidence ballot.

Mayawati, the leader of the fourth-largest party in parliament, was routed in polls in her Uttar Pradesh state bastion in May and may not want to face another election soon. The Samajwadi Party, the third-biggest group and Mayawati’s archrival, has given mixed messages, signaling it will continue outside support to the government while opposing the arrival of foreign retailers.

GOVERNMENT CONFIDENT

Congress said it was confident of defeating a no-confidence motion. “The government will prove its majority on the floor of the house and win the vote,” said party spokesman Sandeep Dikshit. Congress is open to discussion on FDI in retail, he said.

Ahead of the reopening of parliament, Singh Oct. 28 replaced a third of his ministers, drafting in younger lawmakers in an attempt to restore the reputation of an administration tainted by corruption scandals.

At a rally in New Delhi on Nov. 4, the prime minister, flanked by Sonia Gandhi and her son Rahul Gandhi, the top two leaders of Congress, defended the changes to investment rules as the only way to generate revenues needed to lift millions out of poverty.

The economy expanded 5.5 per cent in the three months through June from a year earlier, close to the 5.3 percent pace of the previous quarter that was a three-year low. Headline inflation has exceeded 7 per cent for most of this year, the fastest among BRIC nations, which also include China, Brazil and Russia, and a rate that Reserve Bank of India Governor Duvvuri Subbarao has said exceeds acceptable levels.

Unlike the retail proposals, the pension and insurance sector changes need parliamentary approval before becoming law.

Political wrangling over the retail plan is likely to add to concerns among companies looking to invest in India, said Kishor P. Ostwal, chairman and managing director of CNI Research Ltd. Potential investors “will not enter India in a big way till the 2014 elections are done,” he said, in a reflection of the policy uncertainty. India wants to attract global retailers such as Wal-Mart Stores Inc. and Carrefour SA.

The Foreign Investment Promotion Board approved Ikea’s proposal to open stores in India, Economic Affairs Secretary Arvind Mayaram said today in New Delhi. The Cabinet Committee on Economic Affairs will now need to consider Ikea’s plan.

The last session of parliament was the least productive in 17 months, amid clashes between the government and opposition parties over alleged revenue losses linked to the award of coal mining contracts. About 102 bills are pending in parliament, according to New Delhi-based PRS Legislative Research, a monitoring group.

“The BJP and the communists will try to create hurdles to prevent the government from getting the reform bills passed for their own political objectives,” said Satish Misra, a political analyst at the Observer Research Foundation in New Delhi. “Passage of the insurance and pension bills seems difficult.”

With assistance from Abhijit Roy Chowdhury, Kartik Goyal and Malavika Sharma in New Delhi and Jeanette Rodrigues in Mumbai.




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