NEW DELHI — The likelihood of India throwing open its doors to multibrand retailers grew more uncertain over the weekend as Mamta Bannerjee, leader of the Trinamool Congress, categorically stated that “the government cabinet decision on the issue would be suspended until and unless a consensus is evolved.”
She said that minister Union Finance Minister Pranab Mukherjee had told her this in a private conversation.
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Her statement has been carried by several local newspapers and is seen by many as a sign the government’s plan to allow foreign multibrand retailers to own a majority of their Indian operations is unlikely to go forward. However, the issue is not quite dead, for the matter can only be officially negotiated in Parliament, which will meet on Wednesday.
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Meanwhile, Pranab Mukherjee has said that “he could not announce anything because Parliament is in session. Any government decision will be made in Parliament. I talked to her twice, but officially I can’t make any announcement as Parliament is in session.”
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Foreign retailers, many of their Indian counterparts, industralists and economists who strongly support the government decision to open up the retail sector to foreign direct investment ± 51 percent FDI in multibrand retail and 100 percent in single brand retail — have been dismayed by Bannerjee’s comments and have been protesting strongly today.
“It would be really unfortunate for the country, the economy and the Indian consumer if it doesn’t happen,” said Dipak Agarwal, chief executive of operations and strategy at DLF Brands. A subsidiary of DLF Ltd., DLF Brands operates stores for 11 international brands including Armani, DKNY, and Boggi. “The ruling will really take Indian industry to the next level.”
Like many others, he is hoping that the government is going to take the stand it has promised, and not relent as opposition parties are demanding. “It is hard to say if it will happen because there is so much chaos and confusion surrounding this issue. But if you look at today’s situation, it seems like the government may have to roll back,” he said.
The situation has been growing worse since Nov. 24 when the government decided to further deregulate the retail sector after discussions on the issue for more than five years. Since the announcement, nine days of Parliament meetings have been devoted to the issue and have resulted only in an increasing level of confusion.
A strike by retailers throughout India on Thursday to protest the government’s decision strung together as a voice of protest from northern cities like Jalandar and Lucknow to Tamil Nadu in the south. “Around five crore [50 million] traders belonging to 10,000 traders’ bodies across the country participated. Traders took out marches in commercial markets across the country,” said Praveen Khandelwal, secretary general, Confederation of All India Traders’ (CAIT)
However, many markets and shops remained open across the country. In New Delhi, several markets remained selectively open, giving an indication of the retailers more pragmatic approach to the whole problem of foreign retailers coming into India. Foreign retailers like Carrefour, Wal-Mart and Tesco that have stores in India under the cash and carry format heightened their security measures as some of the traders have been accusing foreign companies of taking away their jobs.
The issue is not so much about job dislocation for the mom-and-pop stores that account for 90 percent of the $450 billion retail industry but is “more of a political issue,” said Kishore Biyani, chief executive of Future Group, which is the biggest retailer in India and has stores such as Pantaloon, Central, and Big Bazaar. “We run 152 Big Bazaar stores. I have not seen any impact on small traders around these stores.”
But shares of several retail companies were affected by the uncertainty over FDI in multibrand retail, including Biyani’s Pantaloon Retail (India) Limited, whose shares dropped 12.9 percent Monday.
Meanwhile, the government has been indicating that it will not back down from its decision and has been lobbying for support within the Congress Party. The Union Cabinet has also made a crucial move forward in sending consent to the Department of Industrial Policy and Promotion (Dipp), which is the next logical step for implementation of policy.
The winter session of Parliament will continue until Dec. 22 but analysts said the parties will have to come to a consensus soon as important decisions pertaining to the economy are being held up.
Industry heads are trying to make their support for this issue as clearly as possible before Parliament meets on Wednesday.
They contend the government will look weak and indecisive and damage the industry further if it goes back on its decision.
“It will come as a major dampener for Indian investment activity and reduce whatever little credibility the current government has both within inside and outside,” said Arvind Singhal, founder of Technopak Advisors.
Other analysts agreed. “If there is a reversal, it will send a strong negative signal to the investor community,” said Rajiv Kumar, secretary general of the Federation of Indian Chambers of Commerce and Industry. “I hope it is not a reversal of the cabinet decision.”