By Adam Plowright (AFP) – Sep 14, 2012
NEW DELHI — India gave the green light on Friday for foreign supermarket chains to enter the country as part of a blitz of economic reforms intended to spur growth and revitalise the government.
Global leaders such as Walmart, Tesco and Carrefour will be able to own up to 51 percent in Indian subsidiaries, allowing them into a previously protected but potentially hugely lucrative sector.
Last December, the administration of Prime Minister Manmohan Singh, reeling from a string of corruption scandals, was forced to withdraw the reform proposal due to fierce resistance.
"The cabinet has taken many decisions today to bolster economic growth and make India a more attractive destination for foreign investment," Singh said in a statement.
"I believe that these steps will help strengthen our growth process and generate employment in these difficult times."
The government also relaxed investment rules in the aviation sector to allow in foreign airlines for the first time, and approved the sale of stakes in four state-owned companies in the oil, copper and aluminium sectors.
The announcements follow a bold 12 percent hike in the price of heavily subsidised diesel on Thursday night, which analysts saw as the government looking to shake off its reputation for inaction and revive its reform agenda.
Commerce Minister Anand Sharma told a press conference that the clear message was that "this government thinks of India's interests, its growth, its development, job creation, wealth generation and infrastructure building".
Shopkeepers, opposition parties and even an ally in the national coalition have opposed the change in the law on the grounds that it would destroy the livelihoods of the small business owners who dominate the retail sector.
Populist coalition partner Trinamool Congress, a regional party from the state of West Bengal, issued a 72-hour deadline for the government to roll back the reforms, setting up a tense political drama for next week.
The next task for Singh, 79, the architect of India's first wave of market-oriented reforms in the 1990s, will be to keep the fragile coalition together and avoid early elections.
"Finally the government is taking steps in the right direction," said Jyoti Narasimhan, an economist at the IHS Global Insight consultancy. "The reforms have come at a time when investor sentiment is down the drain."
A recent poll by the US-based Pew Research Center showed that just 38 percent of Indians thought the country was heading in the right direction.
The government sees foreign supermarkets as a way to improve the food supply chain, particularly in refrigerated facilities, as well as a means to create an estimated 10 million jobs and bring down food prices.
Sharma said India was the second-biggest producer of fruit and vegetables in the world, but losses after harvest meant that more than a third of the fresh produce never reaches consumers' plates.
Among conditions imposed on foreign supermarkets, they will have to invest a minimum of 100 million dollars, open stores only in towns with a population of more than one million and source 30 percent of produce from India.
"Furthermore, the implementation has been left entirely to the decision and discretion of the states of the union," Sharma explained, meaning states opposed to the reform can opt out.
The sale of stakes in the state-run companies and the increased diesel price are aimed at repairing the government's finances, which are under strain from slowing economic growth and an increasing burden of subsidies.
Trucking unions are threatening to go on strike over diesel prices, however, and there are fears that higher fuel costs will spur India's inflation, which new data on Friday showed had accelerated to 7.55 percent in August.
Business groups, which have been calling for decisive action to turn around the slowing economy, welcomed the decision.
"This reflects the resolve of the government to usher in a retail revolution in the country and also signals to the investor community that India is committed to furthering reforms," said R.V. Kanoria, president of the Federation of Indian Chambers of Commerce and Industry.
The reform of the aviation sector will potentially throw a lifeline to companies such as debt-laden Kingfisher, which is in desperate need of funds to implement a turnaround plan.
Foreign airlines are currently barred from taking stakes in India's debt-laden and loss-making airlines, but other overseas investors can hold up to 49 percent.
Under the reform, airlines would be able to purchase up to 49 percent.
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