Vote on retail reform soon as govt bows to pressure

NEW DELHI Thu Nov 29, 2012 9:41pm IST

A view of the parliament is reflected on a car in New Delhi April 24, 2012. REUTERS/B Mathur/Files

A view of the parliament is reflected on a car in New Delhi April 24, 2012.

Credit: Reuters/B Mathur/Files

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NEW DELHI (Reuters) - The government bowed to intense opposition pressure and agreed on Thursday to a vote on its decision to let foreign supermarkets set up shop in India, taking a major step towards ending a deadlock that has paralysed parliament for days.

In finally conceding to a symbolic vote on its flagship economic reform, Prime Minister Manmohan Singh's fragile coalition appears to have calculated that it has the numbers to overcome opposition demands for the measure to be rolled back.

The debate will begin on Tuesday in the lower house, with voting likely the next day, members of parliament told reporters. A vote will also take place in the upper house.

A lot is at stake for Singh's minority government. If it loses the vote it would be more than just an embarrassing setback. It would likely face intensified pressure to reverse its executive decision in September to allow foreign direct investment (FDI) of up to 51 percent in domestic supermarkets.

"It is most crucial for government and the country at this stage that the vote on FDI musters a majority otherwise it will be a symbolic blow for the government," said Paresh Nayar, head of fixed income and forex trading at First Rand Bank.

"India is a deficit country and needs all foreign flows to manage the rupee, to cut deficits and to push GDP," he said.

India's economy is set to grow at its slowest pace in a decade this fiscal year. Manufacturing is contracting and exports are falling. October's trade deficit of nearly $21 billion was its worst on record.

The concession on the vote helped send shares to their highest levels in nearly 19 months, while the rupee made its biggest daily gain since September 21.

"It's an important step to break the parliament logjam. This was the key stumbling block," said Rajeev Malik, senior economist at CLSA Singapore.

The deadlock had threatened to derail the government's efforts to drive forward its stuttering economic reform agenda with new legislative measures to allow greater foreign investment in the insurance and pension sectors.

The Sensex closed provisionally 1.8 percent up, while the broader Nifty was up 1.7 percent.

GOVERNMENT NEEDS HELP

While the government is confident of mustering a majority in the lower house of parliament, or Lok Sabha, the vote in the upper house, or Rajya Sabha, will be harder to win. The ruling Congress party and its coalition allies have fewer seats there.

The main opposition party, the right-wing Hindu nationalist Bharatiya Janata Party, and leftist parties have disrupted parliament for nearly a week with demands for a vote on the supermarket reform, which they strongly oppose. The government had resisted such a move and called instead for a debate.

After the house speaker announced plans for the vote, parliament resumed operating normally, if noisily, for the first time in months. The summer session was washed out by opposition protests over sweetheart coal deals with power companies.

Critics say allowing foreign players into the $450 billion retail sector will destroy the livelihoods of millions of small shop owners. The government says the move will bring down waste and costs in a country where one-third of fresh produce rots and food inflation is a persistent worry.

Wal-Mart (WMT.N), the world's biggest retailer, plans to open its first supermarket in India in 12 to 18 months.

For the government to win the vote in the Lok Sabha it would need the help of the Samajwadi Party and another major regional party, the Bahujan Samaj Party, neither of which are part of the coalition but often vote with it in parliament.

While both parties oppose the reform, the government is banking on them abstaining, thereby depriving the opposition of a majority.

The two parties have proven fickle allies in the past and have not publicly revealed which way they will vote. But over the past week, the government has been lobbying hard for their support.

(Reporting by Nigam Prusty and Satarupa Bhattacharjya in NEW DELHI, additional reporting by Neha Dasgupta, Suvashree Dey Choudhury, Archana Narayanan and Subhadip Sircar in MUMBAI; Writing by Ross Colvin; Editing by Frank Jack Daniel and Robert Birsel)

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