NEW DELHI // The Indian parliament broke a nine-day logjam yesterday after the government agreed to put on hold its plans to open the country's retail sector to foreign companies.
The initial decision last month to allow foreign companies to own 51 per cent of supermarkets in major cities and 100 per cent of single-brand stores was hailed by the business community as a long overdue reform.
The government said foreign retailers would bring better prices for farmers and lower prices for consumers by cutting out middlemen and upgrading the country's infrastructure.
Yesterday, the government held a meeting with all the parties to hammer out a deal: it would put the decision on hold if they would let the legislature function.
Afterward, Pranab Mukherjee, the finance minister, told parliament that foreign retail was "suspended until a consensus is developed through consultations with various stakeholders".
The decision partly reflected the political influence of India's 33 million small shopkeepers, the heart of the country's retail industry, who said they would be crushed by the competition.
Rajesh Sachdeva, who runs the family corner store in New Delhi, said the entry of international retail stores was inevitable.
"It [the bill] has not been retracted, this is simply on hold for now," said Mr Sachdeva, 35. "There is not much else we can do than wait and watch."
The opposition Bharatiya Janata Party, traditionally seen as the party of the small shopkeeper, has been the most adamant in its resistance to the reforms.
"It's not just a question of how many shopkeepers there are," said Saba Naqvi, a political correspondent for weekly magazine Outlook. "It's also the financial clout they have through the political donations they give to all sorts of parties."
Large retailers supported the decision to allow foreign retailers into the market, saying it would bring much-needed technical knowledge and an injection of capital into infrastructure.
"We are still hoping they will resolve this issue at some stage," said Kumar Rajagopalan, the head of the Retailers Association of India. "If they don't, it will be big setback for consumers and retailers."
The government has not commented on the future of the proposal, but many expect it would wait until after state elections next year.
Rajan Bharti Mittal, the vice chairman and managing director of Bharti Enterprises, said the suspension was unfortunate.
"We hope that various stakeholders across the spectrum will take these facts into account, build consensus and allow this major reform to see the light of the day," said Mr Mittal, whose company's joint venture with Walmart has 13 wholesale outlets in India and sources produce from thousands of farmers.
While the economic implications would not have been felt for some years, the climbdown has had an immediate effect on the government's credibility, both at home and abroad.
Jim O'Neill, the Goldman Sachs banker who coined the term Brics to describe the fast-emerging markets of Brazil, Russia, India and China, said the episode was another example of why India had been the "most disappointing" of the four over the past decade.
"They shouldn't raise people's hopes ... and then in a week say, 'We're only joking'," he told a Reuters-sponsored conference in London.
In India, the government's about-face has left business leaders and political commentators despairing over the growing incompetence of their government.
A statement from the Federation of Indian Chambers of Commerce and Industry described the decision as "deeply disappointing".
"It is a highly regressive move," said the federation president, Harsh Mariwala. "For the growth of this vital sector of the economy, which is likely to result in strong linkages with the farm sector and for the economy as a whole, it is imperative that the reforms like these should take place."
India continues to attract significant amounts of foreign direct investment, taking US$19 billion (Dh69.7bn) in the first six months of this fiscal year, up from $11bn over the same period in 2010.
But inflows have stalled in the last few months due to the difficulties in western markets. India's economic growth slipped below 7 per cent in the last quarter for the first time in more than two years, while the rupee has plummeted to record lows.
* With additional reports by Suryatapa Bhattacharya and Associated Press