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Retail

Singh wins support for foreign conglomerates

Indian Prime Minister Manmohan Singh has won support from parliament for his prestige project. Now the country's market can open up to foreign international concerns.

It might possibly have been Manmohan Singh's greatest challenge in office. But on Wednesday, December 5, the parliament's lower house voted in favor on a very controversial topic: whether or not the Indian market should open up to foreign conglomerates.

It is a complex topic and there is a lot at stake for the government as well as the opposition. For over a year now, India has been at a war of sorts over the question whether or not its multi-billion dollar market should be open to foreign supermarkets.

In September, the government decided it should. But it decided alone. Its argument was: it would give more choice to consumers, create more jobs, especially in rural areas, and it would also give a clear signal to foreign investors that India is an attractive place to be.

Yet the cabinet decision was met with a storm of criticism. Indian Trade Minister Anand Sharma tried in the past few weeks to settle minds by saying: "India is a federal nation. The states which do not want to invite foreign supermarket chains do not have to. It is their decision and the government will respect that."

Customers buy vegetables at a roadside market in Calcutta, India, (AP Photo/Bikas Das)

Indians prefer to buy fresh produce from local markets

Nonetheless, the opposition responded by blocking parliament with strikes and demonstrations. It was able to get the vote, which had more of a symbolic meaning, as the proposed law could have also been passed against the will of the opposition.

"Biggest mistake ever"

Opposition leader Sushma Swaraj of the Bharatiya Janata Party (BJP) called the planned liberalization of the retail sector the "biggest mistake India could make." She said no company would compromise when it came to offering products at the cheapest possible price. "And to increase their own profits, they will squeeze the life out of our farmers."

The number of those who would lose their jobs was much higher than the number of people who would benefit from foreign chains, according to the opposition.

Only one percent of food is bought and sold in supermarkets in India. Even in large metropolises such as New Delhi, Mumbai and Kolkata, most people prefer to buy goods from small merchants or at outside markets. Chit-chatting with your local farmer is all part of the shopping experience in India. Not many people find the idea of anonymous shopping very appealing.

Different setup

Opposition argues that small-scale merchants would not be able to win against the large chains, who bring out the big guns when it comes to price competitiveness and market edge. Market merchants only offer what they can sell in a day. They do not have cooling systems at their stands in which they could store surplus.

Merchant in Patiala, India

The retail sector is India's second-largest provider of jobs

After agriculture, retail in its current - chaotic - form is the largest employer in India. It employs an approximate 20 million people, perhaps even more.

Vivan Sharan of the think tank Observer Research Foundation in New Delhi was skeptical about foreign chains entering the Indian market. "Of course it would mean more products available on the market if chains like Wal-Mart were to come to India. It would also encourage a new brand of efficiency. But it is very obvious that there would no longer be as many jobs in the sector as there are now."

Enormous market

With its rapidly growing market and consumption-oriented middle class, India is naturally attractive for large international chains such as Tesco, Ikea, Carrefour und Wal-Mart. Wal-Mart, which employs over two million people worldwide and takes in around 450 billion US dollars annually, has been planning to enter the Indian market for a while now. The concern has recently announced it would be ready to set up shop in the South Asian country within "around 12 to 18 months" after parliament gives the green light.

Exterior of Walmart in San Jose, California (AP Photo/Paul Sakuma)

Wal-Mart has been preparing for its entry

Though the government has a majority in the lower house, it is in dire need of support in the upper house.

The next elections are set for 2014. Prime Minister Singh's Party Congress has been mired in a number of corruption scandals, soaring inflation and a slowdown in economic growth. A failure in this debate would have been a further blow to the head of government, who is already seen as a feeble leader. Singh had promised various reforms in 2004, when his time in office started. But today, eight years later, he has hardly been able to keep any of those promises. For months now, Indian media has even been speculating over snap elections.

Ahead of the next elections, the government aims to implement reforms in the insurance and pension sectors. In order to do that successfully, it needs support from smaller parties outside of the coalition. Wednesday's vote is a show of that much-needed support.

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