Wednesday, September 19, 2012

Tesco & Walmart in India - the sage continues

The “Walmart in India” continues in the parliament – the other day, the government gave the go ahead for the likes of “Walmart” & “Tesco” to open stores in India.

The government’s coalition partners, however, had other ideas.

See the selection of articles from “The Telegraph” (UK) & “Wall Street Journal” below:

Indian government dealt blow by partner resignation

India's Congress-led coalition has been shaked by the resignation of its second largest partner in protest over diesel price increases and the decision to allow Western supermarkets like Tesco to set up shop.

The chief Minister of the eastern Indian state of West Bengal and the leader of the political party Trinamool Congress, Mamta Banerjee Photo: AFP

By Dean Nelson, New Delhi
5:35PM BST 18 Sep 2012

The withdrawal of the Trinamool Congress, a largely West Bengal-based party, has cut the Indian government's majority down to 16 MPs and left it at the mercy of Mayawati, the controversial 'untouchable' leader from Uttar Pradesh, whose Bahujan Samaj Party has 21 seats.

The withdrawal from the party led by West Bengal chief minister Mamata Bannerjee, has fuelled new speculation of early elections - 18 months before they are due in 2014.

Her six ministers in the United Progressive Alliance government will hand in their resignations on Friday, shortly after Dr Manmohan Singh, the prime minister, unveils his expected cabinet reshuffle. There is speculation that Rahul Gandhi, scion of the Congress dynasty and son of the late prime minister Rajiv Gandhi, could take a cabinet position in advance of his eventual appointment as party leader.

Ms Bannerjee, who has regularly threatened to withdraw her party from the ruling coalition in the last year, said her party had not been consulted over major reforms and had not been shown any "respect."

"We are withdrawing our support. Our ministers will go to Delhi, meet [the] PM and tender their resignations," she said after a meeting her party's leaders.

Congress leaders are confident they can hold their coalition together despite the setback.

They believe their opponents have little stomach and insufficient funds for a general election contest.

"Nobody wants an election, that's what MPs are saying across party lines, even the BJP.

There will be the usual political manoeuvring and give and take but the government will not crash. You need money for elections and a snap poll nobody wants," said a source close to the Congress Party leader Sonia Gandhi.


Indian ministers to resign over Tesco plan, raising fears over coalition


A key partner in India's ruling coalition has withdrawn support from the government and said its ministers would resign in protest over a plan to allow foreign retailers such as Tesco into the country.

The reforms unveiled by Prime Minister Manmohan Singh last week include allowing in foreign retail giants such as Walmart and Tesco Photo: Reuters

4:40PM BST 18 Sep 2012

"Our ministers will go to Delhi to resign. We will not stay in UPA II," the head of the regional Trinamool Congress party, Mamata Banerjee, told reporters, referring to the ruling coalition led by the Indian National Congress party.

The withdrawal of Trinamool, which is staunchly opposed to a move to allow foreign supermarkets into the retail sector, leaves the government weakened and dependent on outside support to pass legislation, AFP reported.

The reforms unveiled by Prime Minister Manmohan Singh last week include allowing in foreign retail giants such as Walmart and Tesco, as well foreign airlines, and included a 12pc hike in the price of subsidised diesel.

Banerjee, a mercurial politician who has forced the government into a series of policy U-turns, swept to power in the state of West Bengal in May last year.

"My party's six ministers have decided to resign. It is time to fight the battle alone," said Mr Banerjee after a meeting of Trinamool leaders in Kolkata, the capital of West Bengal.


Tesco and Walmart get green light to move into India

International supermarket chains such as Tesco and Walmart are to be allowed to set up shop in India as the government bids to revolutionise the country's ailing agricultural sector.

Foreign retailers would be able to take majority stakes in joint ventures, following a decision by Cabinet ministers Photo: Bloomberg News

By Dean Nelson, in New Delhi
5:58PM BST 14 Sep 2012

Foreign retailers would be able to take majority stakes in joint ventures, following a decision by Cabinet ministers. It is hoped the retailers will bring their expertise in logistics and cold-chain warehousing to modernise Indian farming and cut food prices.

The government in New Delhi said last November that it would allow 51pc foreign direct investment in "multi-brand retail" only days later to be forced into a humiliating U-turn as key coalition parties threatened to veto it.

Since then the suspended reform has become a symbol of the Congress-led government's paralysis. It has been mired in corruption controversies over the allocation of coal blocks and 2G mobile phone operator licences, while key economic reforms were put on the back burner.

Its new determination to push through economic reforms and reassure investors follows the appointment of former home minister P Chidambaram as finance minister. Since he was hired, the government has suspended plans to levy vast tax bills retroactively on foreign investors like Vodafone.

Friday's cabinet meeting also voted to increase foreign direct investment levels in domestic airlines to 49pc in an attempt to revive its ailing airline industry and allow foreign airlines to take a stake in Kingfisher, the heavily-indebted carrier owned by the flamboyant drinks billionaire Vijay Mallya. British Airways, Emirates and Singapore Airlines are believed to have indicated an interest in his airline in the past year.

The decision to open the doors to supermarket chains like Tesco, Walmart and Carrefour will be left to individual state governments but ministers expect all the Congress-led states and several other progressive states, like Punjab and Gujurat, which is governed by the BJP, to follow suit.

Although ministers hope the move will reassure international investors the government is committed to reform, its priority is the overhaul of its farming and food infrastructure and to speed up the journey of its produce from farm to market. Tiny farm plots, poor roads and the lack of refrigerated transport and warehousing means 40pc of Indian food rots en route, causing billions of pounds in losses every year and sharp price increases.

The produce usually passes through as many as five different agents before reaching shops.

Gokul Patnaik, a former civil servant who pioneered the entry of Pepsi into Indian agriculture in the early 1990s and is now one of the country's leading players in agriculture, said he welcomed the decision, and expected to see Tesco and other supermarket giants on Indian high streets and in shopping malls before the 2014 elections.

"It means there will be long-term investment in the supply chain, which is the weakest link in Indian agriculture. I expect there will be some serious reaction in some quarters, there will be strikes and all that and most investors will wait until the reaction dies down.

But it will come up in a year or so," he said.

His firm, Global Agrisystems, is one of India's largest logistics and contract farming operators and is likely to be a major beneficiary of the announcement.

Tesco has long voiced interest in India's under-developed market and has been in a joint venture with Tata, one of India's largest multi-national corporations, to develop supermarket logistics and warehousing.

  • Updated September 18, 2012, 4:14 p.m. ET

Party's Exit Imperils India Government

Associated Press

Activists in New Delhi protest foreign investment on Tuesday.

KOLKATA—India's plans for economic overhauls were thrown into disarray, along with its government's prospects for survival, as a crucial ally of the ruling coalition said it would withdraw over plans to let foreign supermarkets operate in the country.

The Trinamool Congress has decided to leave the government over plans unveiled last week, said Mamata Banerjee, the party's head and the chief minister of India's West Bengal state. An entrance of big foreign supermarkets, she said, would hurt small-time Indian retailers.

"Our ministers will go to New Delhi on Friday and submit their resignations," Ms. Banerjee said Tuesday. "We are sorry, but we had to take this hard decision."

Prime Minister Manmohan Singh's governing United Progressive Alliance, which relies on Trinamool's 19 seats to form its Parliamentary majority, isn't likely to fall immediately. Parliament isn't in session and won't meet again until December. His Congress party, which forms the core of the UPA, may be able to rely on independent parties to stay in power even if the opposition calls for a no-confidence vote in December, analysts say.

Still, Trinamool's defection adds to political turmoil in India and could imperil the economic measures taken by the government last week, which also include allowing greater overseas participation in India's airline and broadcasting sectors, as well as boosting diesel-fuel prices to lower subsidies. The measures are being closely watched not only by foreign firms, but also by global investors who see a vital India as an important factor in spurring global growth.

Last year, under pressure from Ms. Banerjee, the government suspended an earlier decision to let foreign supermarkets such as Wal-Mart Stores Inc. and Carrefour SA open in India.

Investors fear the government could again change direction, although Mr. Singh vowed over the weekend not to do so. Calling the overhauls crucial for India to reverse a bleak economic outlook—the country's growth rate is below 6%, its lowest in nearly a decade—he cautioned that failure to adopt the measures could cause a "collapse" of growth to around 5% annually.

The government doesn't need Parliament's approval for the latest measures. But getting other legislation through Parliament without Ms. Banerjee's support is likely to be even trickier. The main opposition Bharatiya Janata Party and smaller regional parties also have opposed the reforms, threatening a nationwide strike Thursday.

Any government backtracking, meanwhile, is likely to draw criticism from investors and ratings agencies, who say the measures are crucial to attract foreign capital and restore growth.

"If the Congress party succumbs to the blackmail, it'll give out a very wrong signal," said B.G. Verghese, a political analyst at the Center for Policy Research, a New Delhi-based think tank. "It'll just show that if enough pressure is mounted, the party can be forced to go back on their reform agenda."

A Congress party spokesman, Rashid Alvi, wouldn't comment on whether the government would reconsider its position. But he said it had "respect" for Trinamool and would discuss the overhauls further with the party in the days ahead.

For foreign retailers, India may present even greater longer-term challenges, however. Even if measures to open India's retail sector become reality, firms are likely to face other impediments to investment—including archaic laws, rickety infrastructure and difficulty in buying land, industry participants say.

Added to that, the government last week gave India's 29 states the power to opt out of the retail measure, and a number of states have accepted that offer. Only nine states—with fewer than half of the country's 1.2 billion people—have so far said they will permit investments. Foreign retailers are further restricted to opening only in cities with more than one million people, a rule aimed at protecting smaller Indian retailers.

"There are a lot of challenges," said Thomas Verghese, chairman of the Confederation of Indian Industry's national committee on marketing. "You will see real results only over a period of four to five years."

Another obstacle to building up retail stores, experts say, will be the difficulty of acquiring land in India, where companies often have to get multiple permits from various government agencies, and different states have different laws on land acquisition and zoning. The poor quality of roads, warehouses and cold storage facilities could eat into foreign operators' profit margins.

A maze of taxation—such as local road taxes, sales taxes and others levies—could further add to costs, other observers said. "It all adds up to a whole lot of documentation and taxes, and adds up to the challenges," said Vasant Nangia, managing director of Fossil India Ltd., a unit of the global retailer. He said the lack of availability of trained manpower could also slow investments.

India's current political instability comes after a difficult few months for Mr. Singh's Congress. The government has faced increasing calls from the opposition BJP to resign amid allegations that its process of allocating coal blocks to private companies was corrupt. Mr. Singh has denied wrongdoing and blamed the BJP for causing disturbances.
To regain the initiative, the government last week unveiled its economic measures, among the most significant overhauls since India opened its economy in 1991. Since then, parties from across the political spectrum, including Ms. Banerjee's, have protested.

Ms. Banerjee's party has opposed the move to open retail to foreigners since last year, arguing it will drive local Indian retailers out of business.

"The livelihoods of about 500 million people in India are tied to the retail sector. If we don't oppose foreign direct investment in retail, where will these people go? How will they survive?" Ms. Banerjee said Tuesday. She added that she wouldn't be held responsible if her actions caused early elections. The UPA government, whose second term began in 2009, must hold national polls in 2014.

Trinamool has one federal cabinet member, Railway Minister Mukul Roy, and five junior ministers, who Ms. Banerjee said will be leaving their positions Friday.

Congress is likely hoping to draw on the support of the Samajwadi Party in the event of a no-confidence vote, said Sanjay Kumar, a fellow at the India-based Center for Study of Developing Societies, a think tank.
The Samajwadi Party isn't formally part of the Congress's United Progressive Alliance coalition government but it often backs the government.

A spokesan for the Samajwadi Party, Ram Gopal Yadav, refused to say what role it would play. "The Congress should not take our support for granted," he told NDTV, an Indian cable news channel.

—Biman Mukherji and R. Jai Krishna contributed to this article.

Write to Rumman Ahmed at and Romit Guha at

A version of this article appeared September 19, 2012, on page A9 in the U.S. edition of The Wall Street Journal, with the headline: Party's Exit Imperils India Government.

Copyright 2012 Dow Jones & Company, Inc. All Rights Reserved


  • September 18, 2012, 11:45 AM IST

India’s First Foreign Supermarket May Be in …


By Margherita Stancati

The Indian government’s decision to allow foreign investment in multi-brand retail could allow big international supermarkets to enter the country.

But the cabinet’s plan, which lets foreign companies own up to 51% of local retailers, comes with conditions attached that limit where the likes of Wal-Mart WMT -0.05%Stores Inc Carrefour SA CA.FR +0.03%and Tesco PLC TSCO.LN 0.00%could set up shop in India if they wanted to.

For a start, it’s up to individual states to take the final call on whether to allow foreign supermarkets in their territory. So far, the only states in favor of this policy are the Congress party-led governments of Maharashtra, the National Capital Territory of Delhi, Jammu and Kashmir, Haryana, Rajasthan, Uttarakhand, Andhra Pradesh, Manipur and Assam.

Most other states already said they will not allow foreign investment in multi-brand retail. The retail reform, aimed at speeding up India’s economic growth, is politically sensitive, with critics saying big supermarkets would put the country’s many small traders out of business.

And the central government can’t even count on all its states for support: Kerala, a Congress-run state, said it will not implement the retail reform. According to a senior local government official, this has to do with fears of a political backlash against Congress, which only narrowly won the latest local elections there. Trade unions – which are historically influential in Kerala, a state with a strong Communist presence – have sharply opposed the proposal.

Another condition is that foreign supermarkets can only be set up in towns with a population of one million or more. There are just 53 towns or cities in India that meet this requirement, according to 2011 census figures. Of these, only 16 cities are in states that said yes to FDI in retail. They are: New Delhi; Chandigarh; Faridabad in Haryana; Jaipur, Jodhpur and Kota in Rajasthan; Srinagar in Jammu and Kashmir; Hyderabad, Visakhapatnam, Vijayawada in Andhra Pradesh; and the following cities in Maharashtra: Mumbai, Pune, Nagpur, Nashik, Vasai Virar and Aurangabad.

There is an exception: States that have no towns with one million inhabitants or more – like Uttarakhand, Manipur and Assam – can still choose to allow FDI in retail if they want to.

All states run by the main opposition Bharatiya Janata Party – including Karnataka, Madhya Pradesh and Gujarat – have opposed foreign investment in multi-brand retail on the grounds that the move as anti-poor. This may taint the pro-business reputation of Gujarat Chief Minister Narendra Modi, who in a recent interview with The Wall Street Journal spoke of how he would fix the country’s economy.

“If you look at the map of India, you’ll see that the majority of states is opposed to FDI in retail,” says Nalin Kohli, a senior BJP official.

There’s also West Bengal, where Chief Minister Mamata Banerjee led a rally against allowing FDI in retail over the weekend. The central government relies on the support of Ms. Banerjee’s Trinamool Congress party for its parliamentary majority. Ms. Banerjee, who last year forced the central government to withdraw an earlier plan to liberalize the retail sector, warned of “hard decisions” unless Congress reconsidered the move by late Tuesday.

Other states ruled by regional parties have opposed the proposed retail reform. They include Uttar Pradesh, the country’s most populous state. The state’s chief minister, the Samajwadi Party’s Akhilesh Yadav, at a televised press conference over the weekend, said “we will not allow FDI in retail,” saying small traders will suffer. This means we’re unlikely to see foreign supermarkets in major Indian cities like Agra and Varanasi anytime soon.

This position was echoed elsewhere, including in Orissa and Bihar. In Tamil Nadu, Chief Minister Jayalalithaa in a statement said she would “never” implement FDI in multi-brand retail, a policy she described as “anti-people.”

After initial uncertainty, even Punjab is opposing opening up the retail sector. “The party’s stand is that it’s against FDI in retail,” said Narej Gujral of the state’s ruling Shiromani Akali Dal party. “We are not against reforms but we want more clarifications on such policies,” he added.

– Preetika Rana contributed to this post.

Follow India Real Time on Twitter @indiarealtime.

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