After the years of speculation, opposition and procrastination, perhaps we should not be surprised that India’s plans to reform its retail sector are proving somewhat problematic.
The reforms, announced by Prime Minister Manmohan Singh two weeks ago, have been welcomed by businessmen and industrialists keen to see India open up its economy further to overseas capital. However, the plans have also been met with fierce opposition by some politicians and Indian retailers fearful over their impact on local business. There have been street protests, while political disapproval has led the Indian parliament to adjourn proceedings.
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Over the weekend, it emerged that the reforms have been put on hold. A member of India’s coalition government who opposes the plans said a decision had been suspended “until and unless” there is consensus among the country’s political parties.
The news is embarrassing for Singh and supporters of the reform within India’s government. The Indian Prime Minister has faced criticism that he has been unable to push through a series of economic reforms; indeed, even a rival politician opposed to the retail plans said Singh’s ambitions for the country’s retail sector were an attempt to deflect criticism over the government’s economic record.
The uncertainty will damage India’s reputation as a key destination for investment. Of course, India’s burgeoning and increasingly wealthy middle class is an attractive prospect for multinational investors but a political climate marked by disputes and an inability to push through reform will deter some and divert capital to rival countries in the east.
India is also a country in need of major investment in agriculture – another question mark that some hold up when considering whether to invest in the country – and a failure to push through reform of its retail sector will mean the food industry misses out on much needed investment.
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By GlobalDataAnd, tellingly in a country where food prices remain high, the government will miss out on a way to push inflation down over the longer term. Prime Minister Singh needs to find some kind of agreement with his political opponents not just for his own legacy but also for the sake of India’s image as a key market for overseas investors.
