Retail reforms on hold; shares slide

MUMBAI Mon Dec 5, 2011 6:50pm IST

Customers shop at a wholesale store in Jammu November 26, 2011. REUTERS/Mukesh Gupta/Files

Customers shop at a wholesale store in Jammu November 26, 2011.

Credit: Reuters/Mukesh Gupta/Files

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MUMBAI (Reuters) - Shares in retailer Pantaloon slumped by their biggest one-day percentage drop in almost a decade on Monday, and business leaders rounded on the government after Prime Minister Manmohan Singh put on hold a landmark reform of the country's $450 billion retail industry.

Postponing the reforms -- which some claim will destroy the livelihood of millions of small shop owners -- is embarrassing for a government that has failed to pass any big-ticket economic reforms as it battles corruption allegations and a limp economy.

The policy shift, that would allow big foreign chains such as Wal-Mart Stores Inc (WMT.N), Tesco (TSCO.L) and Carrefour (CARR.PA) to own a majority stake in supermarket operations, has been shelved until Singh can build a consensus behind it.

Singh's chief political fire-fighter, Finance Minister Pranab Mukherjee, called opposition leaders individually to inform them of the decision, which was prompted by widespread dissent from coalition allies to reforms the government hoped would attract much-needed investment and tackle inflation.

"(The finance minister) has assured them that FDI in retail will be kept in abeyance for now in deference to the views expressed by different political parties," a senior government source said. "It will be in abeyance until a consensus is built on the issue."

Mukherjee said he would make a statement on the reform issue when parliament meets on Wednesday, and not before.

The delay hit shares in local retail firms that had been expected to benefit from tie-ups with the foreign groups.

Shares in Pantaloon PART.NS, whose Big Bazaar supermarket chain is seen as a leading tie-up target, dropped by as much as 13 percent, while Shopper's Stop (SHOP.NS) lost as much as 9.4 percent, and Trent (TREN.NS), the retail arm of the Tata Group conglomerate that already has ties with Tesco, slid as much as 4 percent. The main BSE index was down 0.25 percent.

News the policy was being pushed back emerged at the weekend when Mamata Banerjee, the firebrand leader of the ruling Congress party's biggest ally and an opponent of the reform, said the government had told her the plans would be put on hold until a consensus was reached.

Business leaders rounded on the government for flip-flopping.

In an open letter to "the saner sections of Corporate India", former Hindustan Unilever (HLL.NS) chairman Ashok Ganguly and Deepak Parekh, chairman of Housing Development Finance Corp (HDFC.NS), said opposing the reform was "to the detriment of the vast majority".

The opposition demanded an all-party meeting to build a consensus against the policy shift, and gave no commitment to end protests that have paralysed parliament and held up major legislation including a key anti-corruption law.

"In our view, FDI in retail is not in the interest of the country and should be rolled back," said Ravi Shankar Prasad, spokesman for Bharatiya Janata Party.

"Mr Singh has scored an own-goal by not even seeking out the support of his own party, never mind allies within the UPA (the government coalition), before his cabinet took the decision," the Hindustan Times wrote in an editorial.

(Additional reporting by Abhijit Neogy in New Delhi; Writing by Frank Jack Daniel; Editing by Alistair Scrutton and Ian Geoghegan)

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