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Critics say foreign investment will cripple small businesses

India clears the way for the global retail giants

Critics say foreign investment will cripple small businesses
New reforms will open foreign investment in India's retail sector
Swati Deb, New Delhi

September 18, 2012

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The Indian government, which for months has reeled under high-profile corruption cases and allegations of economic mismanagement, has given the nod to the most comprehensive foreign investment reform in two decades. Prime Minister Manmohan Singh on Friday agreed to allow large transnational retailers, broadcasters, power companies and foreign airlines to invest in India. The reforms caught many off guard. Neither the allies of the federal coalition government, the United Progressive Alliance, nor the opposition parties were expecting it. The Trinamool Congress, a major alliance partner with 19 members in parliament, responded by setting a deadline that expired yesterday for Singh to cancel the reforms. The party may withdraw its ministers, though a final decision may not be announced for some days. Bharatiya Janata, the Indian People’s Party, which heads the opposition National Democratic Alliance, has called for a nationwide shutdown on Thursday. Senior BJP leader L.K. Advani called the announcement a diversionary tactic, aimed at deflecting national attention from the raft of high profile corruption cases which could prove enormously damaging to the government. Sharad Yadav, chief of Janata Dal-U - the United People’s Party - said the government was treading a dangerous path. ‘It’s time even the Congress Party and its leader Sonia Gandhi realized that the prime minister is working at the behest of Americans and jeopardizing the future of thousands of small time shopkeepers,” he said. According to him,  foreign direct investment will fuel unemployment at all levels, leading to major social problems. He also warned that India would witness trouble from Maoists and sectarian forces. He suggested that Singh, who served with the World Bank, “should go back” there. In a joint statement, leftist and other regional parties also called for a major protest on Thursday, alleging that the government has “struck cruel blows on the people, one after another.” Reaction from small businesses and the general populace has also been largely negative. “It was a desperate act by the government. But in the name of reforms, they have acted against the common man, especially against us small time shopkeepers,” said Vijay Agarwal, a retailer in Delhi. Many people in the capital including shopkeepers, students and auto drivers have threatened to participate in the Thursday shutdown. But the prime minister seems resolute in his decision, which came after what one analyst describes as months of “indecision and policy paralysis.” Singh pioneered India’s economic liberalization in 1991 as the country’s finance minister. His latest reforms would allow 51 percent foreign investment in retail stores. Corporate players have cheered the government move. “From a famine of policy action, we’ve moved to a feast,” tweeted Indian auto giant Anand Mahindra. “The swiftness and firmness will give a strong signal to the market that the government cannot be bulldozed to remain a mute spectator,” D.S. Rawat of the Associated Chambers of Commerce and Industry of India told The plan, however, does come with qualifications. In particular, foreign investors must make a minimum investment of US$100 million, 50 percent of it in infrastructure. India's economy, which grew at 9 percent each year in the last decade, recorded only 5.5 percent year-on-year growth in the April-June quarter of the year. Inflation has often hit double digits during the last two years and industrial output has declined. On Saturday, Singh exhorted the nation to be courageous to achieve higher growth rates. “I believe that we can make it," he said. " It will take courage and some risks.... The country deserves no less.” On Sunday, the prime minister’s office also issued a detailed statement in praise of its reforms. It said that over the last 10 years, more than 77 million households have accessed banking services, more than 34 million households acquired concrete roofs and more than 60 million got new electricity connections. Related reports “Coalgate” scandal brings India’s parliament to a halt
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