Through last week, the Congress party, which is the largest in the ruling coalition, stood firm in the face of hostility on its decision to allow 51% foreign direct investment (FDI) in its multi-brand retail sector.
However, over the weekend, it emerged that the Mamta Banerjee, chief minister of West Bengal and leader of the Trinamool Congress, which is an ally with a significant number of parliamentarians was against the decision.
Under threat of the possibility that the bill would be blocked thanks to Banerjee's numbers, and perhaps even put the government in a minority situation, the decision to allow FDI in multi-brand retail has been put on hold.
“I can confirm that the decision to open up the retail sector has been put on hold pending further internal discussions. The government is aware of concerns of allies and would consult with them again,” a source told FoodNavigator-Asia.
The source, who works in a ministry directly affected by the decision, said on the condition of anonymity that the government's decision to hold on FDI in retail has been conveyed to the opposition as we all.
“I am told that they would be involved in the collaborative process before any new decision is made on the allowing FDI in retail,” he said.
Kiranas up in arms, but food producers welcome FDI
The decision to open up FDI in retail has been met by hostility from day one, with opposition parties protesting that the FDI decision dealt a fatal blow to small, independent Indian retailers, also known as Kiranas.
Retail trade associations such as the Confederation of All India Traders (CAIT), which called for a nationwide strike last week to protest the government decision to allow FDI in retail, backed these political protests.
A spokesperson for CAIT told FoodNavigator-Asia that its strike was supported by 50 million retailers belonging to local trade associations and that the sector was unanimously against the decision.
“This decision is a nightmare for the consumer and the retailer. We are a country of small businesses of which many are retailers and traders. FDI would create an uneven playing field and favor the big business,” he said.
Food processors and producers have a more positive view of the decision. An official at a nation-wide farmer’s cooperative told FoodNavigator-Asia that the FDI decision would only mean more organisation in a currently chaotic sector.
“Organised big retailers prefer to source locally and directly and also do not shy away from investing in the supply chain. They also are willing to invest in new technologies and processes, which would help Indian farmers,” he said.
Coupled with the government’s follow up decision to ensure at least 30% of the procurement from small processors and manufacturers, FDI would be a move in the right direction, he added.
However, the official bemoaned the caveat which would restrict FDI-backed retailers to big cities with a population over one million, and not spread to smaller towns and villages.
“The idea should have been to incentivise retailers to go deeper into India allowing them to go closer to farmers, and bring the rural and urban markets through organised backward and forward linkages,” he said.