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Singh Speeds Up Decisions as Wal-Mart Closer to India Entry PDF Print
Written by Andrew MacAskill   
Saturday, 19 November 2011 06:24

India may move a step closer next week to opening its $396 billion retail market to foreign companies including Wal-Mart Stores Inc. (WMT) as it seeks to free a legislative process deadlocked for a year by corruption charges. 

 

Source: Bloomberg

 

The cabinet is likely to consider allowing as much as 51 percent of foreign direct investment in stores selling more than one brand, and may consider within two weeks a limit of up to 24 percent in local airlines, government officials said yesterday, declining to be named, citing the policy of their ministries. Prime Minister Manmohan Singh will present a bill in parliament in the next session, permitting 26 percent ownership in pension funds, a move opposed by left-wing political parties. 

 

“This is definitely the biggest push to change foreign ownership rules since Congress returned to power in 2009,” said Laveesh Bhandari, a director of Indicus Analytics, an economics research firm in New Delhi. “It is good news. But we should be very cynical because there have been many statements in the past that they haven’t been able to follow through on.” 

 

Singh’s Congress party-led coalition government has been stung by criticism that there is a paralysis in decision making following a series of high-profile corruption scandals that have led to the jailing of a minister, lawmaker and bureaucrats. Reliance Industries Ltd. (RIL)’s Chairman Mukesh Ambani, India’s richest man, said this week the government needs to do more to push through laws to bolster the economy, which the central bank predicts will expand at the slowest pace in three years. 

 

Restrictions 

India bars overseas companies from owning retail outlets that sell more than one brand and allows 51 percent holding in single-brand retail. Wal-Mart, Carrefour SA (CA), which operate wholesale stores in the country, and Tesco Plc (TSCO) are among companies vying for a share of a market that Business Monitor International estimates will double to $785 billion by 2015. 

 

Full foreign ownership of companies that sell a single brand will also be considered, one of the people said. The proposal does not need parliamentary approval. 

 

Policy makers have been debating foreign investment in retail for at least seven years in the face of concerns that mom-and-pop stores will lose their livelihood. 

 

“We are told that we will be allowed to open stores today and then we are told it’s going to be tomorrow and it goes on,” Lucy Neville-Rolfe, a director at Tesco, said in Mumbai on Nov. 14. “It does seem to be slow and challenging.” 

 

Shares Gain 

Shares of Pantaloon Retail India Ltd. (PF), India’s largest retailer, rose 9 percent to 198.4 rupees in Mumbai trading today, the highest level since Oct. 12. Shoppers Stop Ltd. gained 0.3 percent and Trent Ltd. (TRENT), which has a franchise agreement with Tesco, reversed gains and closed 0.6 percent down. The benchmark BSE Sensitive Index declined 0.6 percent. 

 

The four-week winter session of parliament starts Nov. 22 when the government will also seek to pass a bill that creates an anti-corruption body with powers to investigate bureaucrats. The government agreed to pass the bill in response to nationwide protests that swept the country in August. 

 

Opposition political parties protesting against the government’s failure to tackle graft have disrupted the last three sittings of parliament. The winter session of parliament last year was the least productive in 25 years. The most recent, which ended on Sept. 8, saw the government only introduce a third of the bills it planned. 

 

Worst Performers 

The Sensex and the rupee are the worst performers in Asia this year. Slowing government decisions, rising borrowing costs and the debt crisis in Europe have fueled the slump. The central bank has raised its repurchase rate 13 times since March, 2010. The number of cabinet approvals fell 39 percent to 33 in the first six months of this year from a year earlier, according to government data. 

 

“If these bills are approved it will be very positive for the capital markets because foreign investors’ confidence that the government can take decisions will be restored,” said R.K. Gupta, managing director of Taurus Asset Management Ltd., which manages $1.1 billion. “This will show that the Indian government means business.” 

 

The Sensex plunged 20 percent this year, while the rupee sank 12 percent. Benchmark 10-year bond yields have risen 89 basis points, or 0.89 percentage point, to 8.81 percent this year, the highest level among Asia’s 10 biggest economies. 

 

Prime Minister Singh, halfway through a second term in office, is under pressure to show his government is delivering on policy changes, according to N. Bhaskara Rao, chairman of Centre for Media Studies. The ruling Congress party will face voters next year in Uttar Pradesh, the country’s most-populous state, and in nationwide federal elections in 2014. 

 

“So far they don’t have anything to show in their second term,” said Rao who is based in New Delhi. “Their lawmakers are agitated, they are worried, they know that time is running out to do things.”