Govt wins FDI vote in Lower House

December 06, 2012 - 4:54:26 am

Finance Minister P Chidambaram and other ministers come out of the parliament after voting on the motion of the Foreign Direct Investment (FDI) issue, in New Delhi yesterday.

NEW DELHI: India’s minority government survived a vote in parliament yesterday on a contentious move to allow in foreign supermarket chains, delivering a major boost to its pro-market reform agenda.

After two days of stormy debate, lawmakers in the lower house (Lok Sabha) supported the government and defeated an opposition motion against the decision to open up the highly protected retail industry to foreign firms such as Walmart.

The US retail giant aims to be one of the first to set up foreign-owned megastores for consumers in India, a prospect that has raised fears among opposition parties that small shopkeepers will be put out of business. 

The BSP and the SP strategically walked out of the house before the vote, ensuring that government sailed through the challenges. The halfway mark needed to win the votes was reduced with the SP’s 22 MPs and the BSP’s 21 abstaining. Propelled by the unlikely Mulayam Singh Yadav-Mayawati combination, the government won the FDI motion with a 35 vote margin - 218 votes for the opposition motion and 253 against with 471 of the 544 members present in the house.

The government also won another motion on amendments to the Foreign Exchange Management Act (FEMA) to facilitate its initiative. The FEMA motion was won by 30 votes - the opposition getting 224 votes and the government 254.

A loss for the left-leaning coalition of Prime Minister Manmohan Singh would not have reversed the policy, but would have dealt the government a severe blow and set back efforts to push through other reform measures.

“This is a longterm commitment for investment in our country and this is part of a changing profile of our country,” foreign minister Salman Khurshid told India’s NDTV news channel after the vote. Parliamentary leader of the main opposition Bharatiya Janata Party, Sushma Swaraj, who proposed the motion opposing the entry of large retail chains, expressed disappointment at the outcome.

“Only in elections will they get an answer from the people. They (the government) won on technical grounds inside the house but they lost in a moral sense,” Swaraj told reporters. After years of slow policy-making, Singh’s government unveiled a string of changes in September, throwing open key sectors such as retail and aviation while proposing greater foreign investment in insurance and pensions. This led to the exit of the populist coalition member, the Trinamool Congress, from the state of West Bengal. Its decision to quit the ruling alliance left the government in a minority and reliant on outside allies.

The pro-market push, which includes efforts to cut subsidies, comes as India faces a sharply slowing economy, a gaping fiscal deficit and high inflation, which has stoked pressure on an administration already under fire for corruption. Heavy Industries Minister Praful Patel had told parliament yesterday that foreign direct investment “will not destroy local markets”. “We should realise that globalisation will need India to open its business to all the players in the world,” he added.

During the debate, opposition MPs lambasted the idea of foreign supermarkets in India, saying they would harm traditional family-owned shops where most Indians do their shopping as well as hit farmers. Mulayam Singh Yadav, an ally of the government but an opponent of foreign supermarkets, invoked the memory of independence leader Mahatma Gandhi who burned foreign cloth as a protest against British products.

After the lower house voted yesterday, the upper house is set to follow tomorrow, where political analysts expect the government to face a tougher battle in securing support to defeat the motion. Supporters of the arrival of foreign chains say they will revolutionise shopping in India, with consumers offered cheaper food in large, modern supermarkets, as well as improving the wasteful supply chain.

Foreign supermarkets seeking to enter India will have to abide by a number of rules such as investing a minimum of $100m and opening stores only in towns with populations of over one million people. Previously, the foreign retail groups were restricted to owning wholesale operations in India. Walmart, the foreign chain seen as the most keen to tap India’s vast consumer market of 1.2-billion people, has since been tripped up by two separate investigations in the country.