Indian government bows to pressure, agrees to vote on supermarket reform

Reuters News

11/29/2012 3:50:46 AM - Reuters News

By Nigam Prusty

NEW DELHI (Reuters) - The Indian government bowed to intense opposition pressure and agreed on Thursday to a vote on its decision to let foreign supermarkets set up shop in India, taking a major step towards ending a deadlock that has paralyzed parliament for days.

In finally conceding to a symbolic vote on its flagship economic reform, Prime Minister Manmohan Singh's fragile coalition appears to have calculated that it has the numbers to overcome opposition demands for the measure to be rolled back.

The debate will begin on Tuesday in the lower house, with voting likely the next day, members of parliament told reporters. A vote will also take place in the upper house.

A lot is at stake for Singh's minority government. If it loses the vote it would be more than just an embarrassing setback. It would likely face intensified pressure to reverse its executive decision in September to allow foreign direct investment (FDI) of up to 51 percent in domestic supermarkets.

"It is most crucial for government and the country at this stage that the vote on FDI musters a majority otherwise it will be a symbolic blow for the government," said Paresh Nayar, head of fixed income and forex trading at First Rand Bank.

"India is a deficit country and needs all foreign flows to manage the rupee, to cut deficits and to push GDP," he said.

India's economy is set to grow at its slowest pace in a decade this fiscal year. Manufacturing is contracting and exports are falling. October's trade deficit of nearly $21 billion was its worst on record.

Wal-Mart, the world's biggest retailer, plans to open its first supermarket in India in 12 to 18 months.

Meira Kumar, speaker of the lower house of parliament, or Lok Sabha, announced the vote.

GOVERNMENT NEEDS HELP

While the government could muster a majority there, the vote in the upper house, or Rajya Sabha, will be harder to win. A loose government ally, the Samajwadi Party, has indicated it would vote against the government in the upper house.

The main opposition party, the right-wing Hindu nationalist Bharatiya Janata Party (BJP), and leftist parties have disrupted parliament for nearly a week with demands for a vote on the supermarket reform, which they strongly oppose. The government had resisted such a move and called instead for a debate.

The deadlock had threatened to derail the government's efforts to drive forward its stuttering economic reform agenda with new measures to allow greater foreign investment in the insurance and pension sectors.

After the speaker's announcement, the lower house of parliament resumed operating normally, if noisily. The upper house was disrupted again by BJP demands for a vote there.

Critics say allowing foreign players into the $450 billion retail sector will destroy the livelihoods of millions of small store owners. The government says the move will bring down waste and costs in a country where one-third of fresh produce rots and food inflation is a persistent worry.

For the government to win the vote in the Lok Sabha it would need the help of the Samajwadi Party and another major regional party, neither of which are part of the coalition but often vote with it in parliament. While both parties oppose the reform, the government is banking on them abstaining in the lower house, thereby depriving the opposition of a majority.

The two parties have proven fickle allies in the past. But over the past week, the government has been lobbying hard for their support.

"Since this is such a controversial issue, it seems logical that the government must have worked on the numbers before deciding on vote," said Abheek Barua, chief economist, HDFC Bank.

"The government is emerging a much better floor manager this year. Also I think the vote will put all controversies to rest, otherwise there could be disruptions to the entire legislative process."

(Reporting by Nigam Prusty and Satarupa Bhattacharjya in NEW DELHI, additional reporting by Neha Dasgupta, Suvashree Dey Choudhury and Archana Narayanan in MUMBAI; Writing by Ross Colvin; Editing by Frank Jack Daniel and Robert Birsel)