Backlash grows over Indian retail reform

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Story highlights

  • Fierce political backlash in India against a decision to allow foreign retailers
  • Leader of Tamil Nadu adamantly opposed Sunday the liberalization of retail market
A fierce political backlash against a decision to allow foreign retailers to enter the Indian market gained momentum on Sunday when the leader of Tamil Nadu adamantly opposed the liberalisation.
Jayalalithaa, the chief minister of the southern state, said she would shut out foreign-controlled supermarket chains. She hit out at the central government decree last week warning that it was "ill-advised and unilateral" and would stir up a "hornet's nest" of protest.
"My government will not allow the multi-brand global players as permitted under the new policy to set up their hypermarkets in Tamil Nadu," Jayalalithaa said.
Fast-growing Tamil Nadu, with a population of 70m, is one of the handful of Indian states that big retailers, such as Walmart, Tesco and Carrefour, would target as a lucrative market.
The chief minister's opposition highlights the parliamentary fury that the Congress-led government can expect in coming days after its decision to push through one of the biggest economic reforms in years.
It also highlights the ability of individual states to scupper the ambitions of foreign retailers as political parties seek to bolster support among millions of small shopkeepers.
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On Thursday the cabinet headed by Manmohan Singh, prime minister, agreed to allow foreign companies to buy a 51 per cent stake in Indian supermarkets, and own single-brand retailers outright.
Anand Sharma, the commerce minister, last week said adoption of the liberalised investment rules would be up to individual states. "Anyone who wants to open a hypermarket must get a licence from a local authority," he said, suggesting market access would vary across India.
The dispute over retail reform threatens to intensify a year-long paralysis in parliament in New Delhi triggered by an opposition outcry over corruption scandals and high prices.
But Salman Khurshid, the law minister, said on Sunday that many opposition parties, including the Bharatiya Janata party, had privately encouraged the government to push through the retail reform. Jayalalithaa said liberalisation would fail to meet central government goals of cutting inflation and improving infrastructure. She warned the entry of multinational retailers would lead to a dominance that would decimate local retailers and force millions of people out of work.
"While parliament is in session, this move of the government of India without even consulting the state governments is unprecedented and indicates the overweening arrogance of the [Congress-led] government," she said.
Earlier, Mayawati, the chief minister of the northern state of Uttar Pradesh, India's most populous, said the reform if implemented would bankrupt her state.
Kerala, a southern state controlled by the Congress party, has also expressed its unhappiness with the cabinet decision.
Many business lobby groups have, however, welcomed the transformation of a long-protected sector that has left Indian shoppers bereft of the scale and variety of their counterparts in more developed markets.
B. Muthuraman, the president of the Confederation of Indian Industry, said the liberalisation would open up "enormous opportunities" and lead to much-needed investment in cold chain, warehousing and contract farming.
"[India] is a consumer-driven economy and modern retail has to step up to be able to meet consumer aspiration not only in metro cities and towns but across the Indian sub-continent," he said.
Ikea, the Swedish retailer, is expected to be one of the first to announce expansion plans when Mikael Ohlsson, chief executive, visits New Delhi on Tuesday.