On Thursday, days after officials finally announced decisive reforms, those "vested interests" made eminently clear their displeasure over the Cabinet's decision to cut fuel subsidies and allow foreign investment in the retail, aviation and broadcasting industries.
In a show of force, the main opposition Bharatiya Janata Party backed by left-wing parties called a nationwide general strike. Trains, buses and rickshaws stopped rolling from early morning in several of India’s 35 states and union territories, over 1 million stores were shuttered and effigies of the prime minister were burned as thousands of workers and small-shop owners marched, waved flags and blocked traffic.
Some kiosks were also attacked and tires were burned to block traffic, while some shops that remained open, including a Wal-Mart outlet in central Uttar Pradesh state, were forced by angry mobs to close for the day.
But the picture was mixed. Even as activity ground to a near halt in the states of West Bengal, Uttar Pradesh, Bihar and Orissa, things remained relatively normal in New Delhi and the states of Kerala and western Maharashtra state, where Mumbai is based.
Under the announced reforms, foreign ownership of up to 51% will be allowed in supermarkets and chain stores such as Wal-Mart. Local airlines will be able to sell shares to foreign carriers. And foreigners can take stakes in broadcasting and parts of the electrical power industry. As part of its bid to jump-start the flagging economy, the government also vowed to sell off stakes in government-run resource companies.
The outcry that’s followed highlights the pronounced gap in Indian society between the affluent middle class that wants better service, presentation and choice in the growing number of air-conditioned malls, and the hundreds of millions of people working and shopping in mom-and-pop stores who fear that added efficiency will kill jobs.
“Small shops can’t compete with these big guys,” said Uma Shankar, 48, owner of a small pharmacy in New Delhi’s Vasant Vihar neighborhood filled with dusty shampoo bottles and medicine boxes stacked haphazardly. “This is a setup between the government and foreign companies. We’re barely scraping by. Where will we go?”
The decision also sparked a political crisis after the second-largest partner in the ruling Congress Party-led coalition, the mercurial Trinamool Congress Party, announced its intention to withdraw from the government by Friday unless reforms are rolled back.
Although Trinamool only holds 19 of 541 seats in the lower house of parliament, its departure would put an end to the government’s parliamentary majority, raising the chances of early elections. That’s sparked a mad scramble this week as other minority parties, sensing opportunity, line up to be courted and cajoled by Congress Party leaders.
Among the most politically sensitive reforms is the 10 cent per liter increase in diesel prices and limits on subsidized cooking gas. As India's fiscal situation and the global economy have weakened — fuel subsidies amount to $32 billion a year and the country's debt ratings are one notch above junk-bond levels — the government has been pressured to take this unpopular step.
Foreign stakes in India’s retail industry, which supports over 200-million people working in an estimated 50-million stores, are also creating friction. "India is heading toward economic slavery," said Rajnath Singh, a Bharatiya Janata Party leader, during a protest Thursday.
Late last year, the government announced a similar opening of the retail market, only to rescind it under political pressure.
Although New Delhi has vowed to stand firm this time, analysts said there’s a good chance some rollback will occur. The most likely scenario, said Sajjid Chinoy, Indian economist with J.P. Morgan, would see the government increase cooking gas and diesel fuel prices by less than previously announced.
But the government should prevail, provided it doesn’t lose its nerve, he added, and may even emerge stronger after a political realignment if it finds more compatible coalition partners.
“I think it’s very admirable the government showed backbone,” Chinoy said. “There’s a lot of noise. But the bottom line is, they’ll probably get enough support to push through the economic reforms.”
Photo: Activists block a train in the central Indian state of Uttar Pradesh during a partly successful nationwide general strike Thursday that saw shops and schools closed in protest over a government decision to cut fuel subsidies and open India's huge retail market to foreign companies. Credit: Associated Press.