India has retracted its plan to allow foreign retail chains like Wal-Mart and Britain's Tesco to open in the country, according to media reports.
The reversal comes less than two weeks after the global business sector, as well as the Indian government, heaped praise on the original agreement to let foreign retailers into India as a move that would jolt the country's economy and lower prices for farmers and consumers.
But 12 days of protests in Parliament and glaring opposition from citizens and owners of smaller, mom-and-pop-type stores in India forced Prime Minister Manmohan Singh's hand. Even some in his own party objected.
Singh and his Congress Party government have been faced with numerous corruption scandals and charges of inefficiency. After the original agreement, the deal had been hailed by some in the party and many analysts as its biggest step toward progress since being reelected in 2009.
But India's finance minister Pranab Mukherjee told Parliament on Wednesday that the plan has been halted, at least temporarily. He said in a statement the plan would be suspended till a consensus is developed through consultation among the various stakeholders, reported The Associated Press.
In an e-mailed statement to the International Business Times, Wal-Mart deferred to the government's reversal, saying it would anticipate further negotiations that would lead to a firm consensus on the issue.
We respect the government's decision and look forward to a consensus being reached on FDI [foreign direct investment] in multi-brand retail, the statement read.
The original plan called for foreign retailers like Wal-Mart and Tesco to own 51 percent of supermarkets in major cities, while local partners would own the remaining 49 percent. Single-brand retailers such as Nike, on the other hand, would own 100 percent of each of their stores. However, an unnamed member of Parliament told Reuters that the plan for single-brand retailers would still go forward, since the local opposition was directed at retailers that would hold 51 percent stakes.
India's retail sector is a $450 billion industry that employs 1.2 billion people, a number that stands second in the nation behind agriculture, according to AP. The Los Angeles Times reported that there are 225 million farmers in India, as well as 35 million employees of mom-and-pop stores.
Sushma Swaraj, the leader of the opposition party in India, said in a statement she was pleased with the decision to put the decision on hold.
Government has bowed to the wishes of the people, she said. To bow before the will of the people is not defeat.
Other leaders and analysts expressed dismay at the reversal.
Uncertainty and confusion in business is a bad thing, John Flannery, chief executive officer at General Electric Co.'s Indian unit, told Bloomberg. It was easier to operate in the country a year ago than it is today. It is frustrating to look at unresolved issues and know that they're resolvable if you can get some leadership and orientation around them.
In the quarter that ended Sept. 30, India's economy grew at its most snail-like pace in two years, according to Bloomberg. In an effort to boost the country's economy, Singh had agreed to the FDI plan.
Singh and commerce minister Anand Sharma have said the FDI would halt inflation above 9 percent, because it would decrease the current levels of farm produce that go to waste before they are sold.
That was before two of Singh's major allies in government, Trinamool Congress and the Dravida Munnetra Kazhagam, fought back against the plan by saying it would damage small businesses and ultimately result in job losses.
Others, like Laveesh Bhandari, a director of Indicus Analytics, an economics research firm in New Delhi, said the halting of the plan was another indictment on Indian leadership.
It is very clear now that the reform process is over until we have a new government, a new prime minister, Bhandari told Bloomberg. The government is so weak they will give up on anything.