NEW DELHI, (Reuters) – India’s fragile ruling coalition won a vote on allowing foreign supermarkets to operate in Asia’s third-largest economy yesterday, in a key test of support for Prime Minister Manmohan Singh and his flagship economic reform.
It was a much-needed boost for Singh at a time when he is trying to drive a second wave of reforms through a fractious parliament. The debate over retail reform has proved a costly distraction for the minority government, eating up two weeks of the month-long parliamentary session.
The victory clears the way for voting on bills aimed at attracting foreign investment to the ailing pension and insurance industries, two measures seen by financial markets as important steps in further liberalising an economy in the midst of a slowdown.
Expectations the government would win had earlier driven India’s stock market to a 19-month high.
“FDI in retail was a barometer to test the government’s strength and the government has proved that they have the support in the parliament to push through such reforms,” said Samiran Chakraborty, regional head of research at Standard Chartered Bank India.
The vote in parliament’s lower house – which the government won thanks to abstentions by two powerful regional parties – was non-binding. However, a loss would have made it harder for Singh to defend the policy to bring global chains such as Wal-Mart Stores Inc. to India’s $450 billion retail sector. Under threat of losing India’s investment-grade credit rating, and facing the prospect of fighting a general election during the worst growth slump in a decade, Singh launched the policy amid a flurry of long-delayed reforms in September.
Money has flowed into India’s capital markets since, and Goldman Sachs last week upgraded India’s outlook, but formidable hurdles remain to get the economy back on track.
The vote was the first big floor test for the government since a partner pulled out of the coalition in protest at the retail policy, which critics say will crush small shopkeepers.
“It is not over, we will fight on the streets,” said Shahnawaz Hussain, a lawmaker for the main opposition Bharatiya Janata Party (BJP), which had called for the vote to challenge retail liberalisation.
The government says the reform will help modernise India’s dysfunctional food distribution system and slash inflation.
Exploitation by foreign traders was a key complaint in India’s independence movement led by Mahatma Gandhi and in the debates leading up to the vote some opposition leaders said the new policy harked back to Britain’s former East India Company.
