India’s government announced a dramatic suite of reforms on Friday designed to breathe new life into the nation’s flagging economy and combat criticism that the second-term coalition is mired in a state of so-called policy paralysis. Among the changes is a long-debated plan to allow up to 51% foreign direct investment (FDI) in local ventures by multibrand retail outlets like Walmart and Carrefour, as well as allowing up to 49% FDI in India’s beleaguered airlines and relaxing regulations for foreign single-brand retail outlets. The announcement followed a controversial 14% hike in diesel prices and a cap in the number of subsidized cooking-gas cylinders allotted to each household, sparking protests across the nation on Saturday.
Prime Minister Manmohan Singh and his colleagues have made a bold move with the series of sweeping reforms. In November, the government approved a plan to allow FDI in multibrand retail, only to suspend the decision days later after it met a storm of protest from members of both the opposition and the Congress Party–led ruling coalition, most notably Mamata Banerjee’s Trinamool Congress. Banerjee and other FDI critics say the plan will chiefly benefit foreign companies while putting untold numbers of small-business owners in India’s vast informal sector out of work.
Now that the government has reaffirmed its intentions, detractors have again lodged their complaints. Sushma Swaraj, leader of the opposition Bharatiya Janata Party, tweeted that the decision was a “blatant betrayal of the assurance” given in December that the government would reach a consensus on the issue before pressing ahead. Trinamool Congress issued a 72-hour ultimatum to its coalition partners to withdraw the reforms — or face the consequences. Whether those consequences might include withdrawing from the coalition is not yet clear, but evidently the Prime Minister and other Congress Party leaders deemed it was worth the political risk vis-à-vis mounting pressure to turn the economy around. “Let us not confuse consensus with unanimity,” Commerce and Industry Minister Anand Sharma told journalists on Friday, as reported by the Hindu. “For unanimity, we will have to wait in eternity.”
In light of the news, analysts have said they expect the Reserve Bank of India will follow with an interest rate cut on Monday. The host of developments have been welcomed by both domestic and international business communities after global rating agencies’ recent knocks on the Indian economy’s prospects. Rhian Chilcott, international director of the Confederation of British Industry, said in a statement, “While we understand the political sensitivities around these decisions, we believe that they will ultimately benefit the citizens of India.” Chilcott cautioned, however, that it will be important to “see the detail behind this and follow the implementation closely.”
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Indeed, how or to what extent the reforms will be carried out is still an unknown quantity. The government has left it up to each state to decide whether they want global big box brands to set up in their borders or not. The Cabinet has stipulated that, in most locations, the multibrand retail outlets may only set up in large cities, and that in the case of multibrand retailers, half of the required minimum $100 million investment has to go into back-end infrastructure. Supporters of the move say the global companies will provide employment for thousands, help farmers cut out middlemen and contract directly with the companies, and improve India’s supply-chain apparatus.