Liberalisation of India's retail the biggest of reforms

In the midst of an otherwise tarnished tenure, the Indian executive branch's success in liberalising the country's retail sector will count as one of its few triumphs. Analysis by Samanth Subramanian

A customer shops at a Best Price Modern Wholesale store, a joint venture of Wal-Mart Stores Inc and Bharti Enterprises, at Zirakpur in the northern Indian state of Punjab.

NEW DELHI // In the midst of an otherwise tarnished tenure, the Indian executive branch's success in liberalising the country's retail sector will count as one of its few triumphs.

The Rajya Sabha, the upper house of parliament, will vote today on the government's decision to open up India's retail sector to foreign investment. But debates and speeches by members yesterday indicated that the government has the house's approval.

The government convinced the Lok Sabha, the lower house, to vote in favour of the move on Wednesday.

The United Progressive Alliance (UPA), the coalition of parties that forms the Indian executive, has been plagued by corruption controversies and charges of economic mismanagement ever since it won re-election in 2009.

Since 2009, the Congress, the head of the UPA, has also fared poorly in state elections in Uttar Pradesh, West Bengal and Bihar. The executive has also been shown up by populist movements such as that of Anna Hazare, the Gandhian activist who held numerous hunger fasts to force - unsuccessfully thus far - the passing of an anti-corruption bill.

In 2011-12, India's economic growth rate also slipped to a nine-year low of 6.5 per cent.

But with the general elections of 2014 looming increasingly closer, the government finally began to push through some of its promised reforms three months ago. At the time, prime minister Manmohan Singh told his colleagues in the cabinet: "If we have to go down, we have to go down fighting."

The liberalisation of retail has been the biggest of these reforms, as well as the most hotly contested. Opposition leaders - from the Bharatiya Janata Party, but also from the Left - have argued that these reforms will allow massive chains, such as Walmart and Tesco, to destroy small Indian traders.

Thus, for the UPA to be able to override this opposition and gain parliament's approval represents no small success. With such reforms, the government hopes, as the analyst Parsa Venkateshwar Rao Jr wrote in the newspaper DNAon Sunday, that it can "fend off corruption charges by turning around the economy".

Nitin Pai, a fellow at the Chennai-based Takshashila Institution, a think tank, argued that the tension around the parliamentary vote was deceptive.

"In this government, everything depends on coalition logic," Mr. Pai said. He noted that parliamentarians toed their party's line so consistently that the Congress had only needed to convince the leaders of these parties to approve the reform. "I don't think the members of parliament are really thinking about what would be good for their constituency. They vote as a block, with their party."

The financial markets in India have reacted positively to the UPA's reforms. After a key political leader outside the UPA, Mayawati, declared yesterday that her party would support foreign investment in retail, the Nifty 50 - an index of 50 stocks - hit a 20-month high of 5,937.40.

The UPA's success in parliament has also proven, yet again, the Congress' proficiency in pressuring or cajoling coalition partners or unaffiliated parties to vote in its favour when it requires the numbers.

It demonstrated a similar resolve when it pitched one of its veteran politicians, Pranab Mukherjee, as a presidential candidate. Mr Mukherjee subsequently was elected into the presidency handily.

Mr Pai warned that the stances taken by the Congress and the BJP during this vote did not necessarily reflect their true economic positions.

"This doesn't mean the BJP is a champion of protectionism and the Congress is a champion of free markets," he said. "If the positions were reversed, their songbooks will be reversed as well."

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