The ruling party of India’s most populous state and communist groups advised Prime Minister Manmohan Singh against reviving plans to allow overseas companies to open supermarkets, a move already opposed by a key government ally. Shares of local retailers fell.
Six parties, including the Samajwadi Party that governs Uttar Pradesh state and the Communist Party of India (Marxist), said in a letter to Singh that allowing foreign direct investment in multibrand retail would trigger job losses. In June, Samajwadi leader Akhilesh Yadav had said the party could back the policy change as long as the interests of small farmers were protected.
Pantaloon Retail India Ltd. (PF), India’s largest listed retailer, fell as much as 6.5 percent in Mumbai and was trading 4.3 percent down at 10:19 a.m. local time. Shoppers Stop Ltd. (SHOP) fell as much as 4.8 percent, and Trent Ltd. (TRENT) declined 2.8 percent before paring losses to 0.9 percent.
“It’s still wait and watch in terms of whether some of these reforms can actually go forward, given the Congress is facing a lot of push back internally,” said Sonal Varma, economist at Nomura Holdings Inc. in Mumbai. “It will obviously not be smooth sailing on FDI in retail. A lot of political work has to be done in terms of building consensus even within ruling coalition’s partners.”
The government is trying to resurrect its plan to overhaul the retail sector, which would enable companies such as Wal-Mart Stores Inc. (WMT:US) to open supermarket chains. The proposals have been stalled since December after protests from opposition parties and Singh’s biggest ally in the governing coalition, the Trinamool Congress of West Bengal leader Mamata Banerjee.
Commerce Minister Anand Sharma this month said the government is trying to get the support of state chief ministers on foreign investment in multi-brand retailing.
“Entry of MNC supermarket and hypermarket chains would cause severe displacement” of small shopkeepers and traders, the parties said in the letter, which was delivered to Singh on July 21. “The entry of the giant Wal-Mart supermarket chain would have a disastrous impact.”
The government says the arrival of foreign retailers would benefit farmers and bring the investment in cold-chain logistics India needs to lower the 40 percent of fruit and vegetables that rot before they can be sold.
Singh’s government, which has been battered by 18 months of corruption allegations and policy paralysis, last week encountered more turbulence as another coalition partner, the Nationalist Congress Party, made public a list of grievances over the way the ruling alliance is run.
The letter to Singh comes amid growing speculation of a government legislative push to boost an economy now growing at its slowest pace in nine years, a cabinet reshuffle and a more high profile government and party role for Congress’ leader-in- waiting Rahul Gandhi.
The Samajwadi Party, headed by Akhilesh’s father Mulayam Singh Yadav, backed the ruling Congress party’s pick for president at a time when Banerjee’s opposition threatened to force a climb down by Congress leader Sonia Gandhi.
The government in November approved plans allowing companies that sell a single brand such as Nike Inc. (NKE:US) to own 100 percent of their operations, removing a cap previously set at 51 percent.
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