Indian Government Puts FDI in Retail Decision On Hold

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Audio Transcript:

Marco Werman: I'm Marco Werman. This is The World. The Indian government did an about face today. It suspended its plan to allow retail giants like Wal-mart to operate in India. The plan, announced just two weeks ago, would have allowed foreign companies to own up to 51% of local retailers but fierce opposition has now forced the government to put it on hold. Sagarika Ghose is a senior editor with CNN-IBN television in Delhi. So this is a stunning reversal, Sagarika. Why is India rejecting what many see as a huge business opportunity?

Sagarika Ghose: Big setback for the government. The government certainly has egg on its face on this one. Well basically the government had no choice but to suspend this particular policy because of the enormous opposition that was mounted by the left parties, the communists parties, as well as the right wing BGB parties. They put an enormous amount of pressure on the government. The left in India, as you know, hates anything to do with America and they literally see red. The BGB, the right wing party, also opposed it for an incomprehensible reason because they are actually in favor of reform. They are actually in favor of foreign direct investment but on this particular issue they bowed down to their vote bank which is the Indian trader, the Indian corner shop, or the mom and pop shop which they felt would be in danger. That is a big constituency for them which is why the government literally had no choice. Parliament was stalled for seven days and has had to back down now.

Werman: How big an investment were we talking about?

Ghose: Marco, it's a big investment. It would have meant 51% of foreign direct investment in Indian retail which would have made a huge difference to Indian farmers, to Indian consumers, to making the market much more competitive. We're looking at really a sea change in the way buying and selling is done in India. A tremendous measure of economic reform, one that is necessary to open up India's market. But sadly the government was not able to push it through.

Werman: Despite the potential of billions of dollars of investment and revenue, it looks like the mom and pop stores, the little guy who we often think as powerless, won. I mean that's pretty astounding.

Ghose: Absolutely, Marco, because that is a huge constituency for the BGB right wing party as well as for the communist party. They actually donate to both parties. But I think the government mismanaged this, was not able to sell retail probably. The government couldn't retail retail properly actually. It should have actually gone out there and convinced people why the mom and pop store was not in danger and they failed to create the political constituency needed for reform.

Werman: How will this affect the government of Prime Minister Manmohan Singh?

Ghose: Big loss of face. He is a prime minister who has made economic reform his cornerstone and this is one big reform which has come after months, years of policy paralysis in the government. Even on this one he has had to back down so this is a big embarrassment I would say for Manmohan Singh and the government has lost a lot of credibility.

Werman: Sagarika Ghose; Senior Editor for CNN-IBN television in Delhi. Thanks so much for speaking with us.

Ghose: Thank you very much.