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India Suspends Decision to Allow Foreign Retailers

A woman shops at a local grocery store in Bangalore, India (November 2011 file photo).
A woman shops at a local grocery store in Bangalore, India (November 2011 file photo).

India has suspended a decision to open the country’s retail sector to foreign superstores. The government backtracked following an outcry by opposition parties and its own political allies.

The government’s retreat on its plan to allow foreign retailers, such as Wal-mart, to open stores in India came less than two weeks after it announced the measure.

After meeting the major political parties on Wednesday, Finance Minister Pranab Mukherjee told parliament that the government will allow foreign investors in the retail sector only after it brings all “stakeholders” on board.

In addition to opposition parties and political allies, several state governments had opposed the entry of foreign superstores - saying the move would put millions of smaller shopkeepers out of business.

"Stakeholders include the state chief ministers, political parties because without the involvement of the state chief ministers, this can never be implemented. Therefore, government will take [a] decision after a consensus is developed through the process of consultations among all stakeholders," said Finance Minister Mukherjee.

The announcement paved the way for the resumption of parliament, which had been paralyzed for days because of noisy protests by lawmakers about the issue.

The leader of the opposition Bharatiya Janata Party, Sushma Swaraj, welcomed the suspension of foreign investment in the retail sector.

Swaraj says the reversal of the decision does not amount to defeat for the government. She says it will strengthen democracy.

However, political analysts say the government’s U-turn on its biggest reform measure in recent years has exposed the ruling Congress Party’s vulnerability. In recent months, the government has faced a rising tide of criticism for not going ahead with key policies needed to give new momentum to India’s economy. The government had said the retail reform would benefit consumers, farmers and create millions of jobs.

N. Bhaskar Rao heads the Center for Media Studies in New Delhi. He says the government fumbled the matter because of the stiff opposition put up by two key political allies.

"They [government] made certain strategic errors of not consulting the coalition partners which they should have done. Image has been set back. The government is not sailing smoothly," he said.

The backlash did not come from just political parties. Millions of small shop owners also joined the protests, raising fears within the ruling party that the decision may adversely affect its fortunes in a round of crucial state elections scheduled to take place next year. Among the states going to the polls is the country’s largest, Uttar Pradesh, where the ruling Congress Party is anxious to put up a good performance.

Wednesday's suspension of the retail reform was a victory for politicians wanting to protect small family-owned shops, which dominate India’s retail sector, employing an estimated 35 million people. But global firms, which have waited years to enter India's $450 billion retail sector, find themselves on the outside again, looking in.