India Withdraws Plans To Allow Multinational Growth In The Retail Industry

In a surprising announcement this morning from India’s Commerce and Industry Minister Anand Sharma after a meeting of all political parties, “The decision to allow foreign direct investment in retail is suspended till [a] consensus is reached with all stakeholders,”

Just two weeks ago, the Federal Cabinet voted to allow multinational brand retailers, to own as much as a 51% stake in joint ventures to open up the country to supermarkets and mass merchant operations.

The original announcement was heralded by retailers around the globe, who have been eager to expand and find new customer bases throughout Asia and Europe. The opening of India, allowed for billions of new customers and future growth.

The move was opposed by India’s opposition parties and business organizations.

Although the move would have brought huge foreign investment into a country that needs it desperately and created new jobs and growth within the retail sector. Retailers in the past few years have been able to enjoy a huge jump in sales, as India’s exports boomed and the country began to develop, the new workers with more money than ever before were forced to spend and purchase only within a few controlled retail operations, reaping huge profits for the owners.

The Prime Minister Manmohan Singh stated that the decision to open up FDI was a well-considered one, and that it would be good for the economy.

The opposition stalled parliament and small retailers organized protests countrywide.

The Congress party, United Progressive Alliance government has been facing intense heat even from key allies, who claim that the entry of foreign retailers will put small traders and neighborhood stores out of business. This is the same claim that is made each time, mass retailers want to expand their markets and in a few years, the economy is reaping the benefits and the small retailers have updated their organizations and operations and have remained competitive and in the market. Much growing with the new import products becoming more easily available.

Some of the smaller regional parties which are part of the Congress governing coalition have opposed the ruling party’s decision.

The government’s giving under political pressure is likely to disappoint foreign investors and hurt the country’s growth potential, economists said. It also shows a weakness of the ruling party.

The government’s move is “surprising” and that it might send out wrong signals to both local and overseas retailers.