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India backs away from retail reform that would let Wal-Mart in

December 7, 2011 |  3:17 am

Less than two weeks after India announced it would let foreign companies such as Wal-Mart enter its retail market, the government said it was suspending the move
REPORTING FROM NEW DELHI -- Less than two weeks after India announced it would let foreign companies such as Wal-Mart enter its fast-growing but often inefficient retail market, the government said Wednesday it was bowing to mounting opposition and suspending the move.

The turnaround is the latest sign of weak leadership and a lack of direction by India's Congress Party-led government, which is beset by corruption scandals, an increasingly ineffective prime minister and rebellious allies. The long-awaited opening of the retail market was touted as the government's biggest reform initiative since it was reelected in 2009.

After a meeting with government and opposition party officials, Finance Minister Pranab Mukherjee told Parliament on Wednesday that the proposal would be put on hold until a consensus emerged. The changes would have allowed single-brand foreign firms such as Nike or Adidas to assume a 100% ownership stake, and multi-brand retailers such as Wal-Mart a 51% stake.

Even though experts said the move would boost incomes for India's 225 million farmers, reduce waste and improve distribution, it faces strong opposition from the 35 million people employed in Indian mom-and-pop stores.

The government's reversal after days of opposition sends a bad signal to foreign investors at a time when India needs capital to build roads and infrastructure, some analysts say. It comes as Indian media report that the government is also considering a suspension in proposed rules allowing foreign investors to take a 26% stake in the nation's battered aviation sector.

Bickering over the retail issue has contributed to a massive logjam in Parliament over the last two weeks, so the suspension of the proposal should allow lawmakers to get back to work. The Communist Party of India termed the turnaround a "people's victory" and said it would effectively kill the initiative. 

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-- Mark Magnier 

Photo: Members of India's main opposition Bharatiya Janata Party protest against the proposal to allow more direct foreign investment in the country's retail market. Credit: Gurinder Osan / Associated Press

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