Mukherjee Lacks Support for Carrefour, Wal-Mart Gains By Kartik Goyal March 2 (Bloomberg) -- Finance Minister Pranab Mukherjee said he lacks support from lawmakers to allow more foreign investment in retail and insurance, stymieing Carrefour SA and Wal-Mart Stores Inc.’s expansion in India. “We haven’t reached the magic number” in parliament, Mukherjee said in an interview with Bloomberg-UTV news channel in New Delhi on Feb. 28. “We are lacking in areas where legislative support is needed,” Mukherjee said, adding there is no “common approach” among allies in the ruling coalition about easing overseas investment rules. More than three years after Wal-Mart formed a venture with billionaire Sunil Mittal, the world’s biggest retailer has just one wholesale outlet in India and is barred from selling directly to the nation’s 1.2 billion people. Legislation to allow insurers including New York Life Insurance Co. to increase investment has been languishing for at least six years. “India will certainly be an important market in a very long term…but its government is very protective of small businesses,” Walter Stackow, an analyst at Manning & Napier Advisors Inc., said in a telephone interview from Fairport, New York. “It will take a long, long time for the foreign retailers to get a real foothold there.” Mukherjee’s comments may damp speculation that Prime Minister Manmohan Singh’s government will allow overseas multi- brand stores including Paris-based Carrefour to open retail outlets during his five-year term ending 2014. The finance minister in his budget speech on Feb. 26 had said India needs to take a “firm view” on opening up the retail sector to bring down food prices that have fueled inflation to a 15-month high. Opposition Parties Singh’s Congress party best election win in 18 years last May increased its tally in parliament to 207 in the 543-member lower house of parliament from 147 in the previous five-year term. Mukherjee, 74, said “it’s surely an improvement” though the government needs “absolute majority of a single party” to make key policy changes. The fragility of the 12-party coalition was underscored in the reaction to Mukherjee’s budget speech, with his two biggest allies protesting at plans to raise excise tax on gasoline and diesel. Mamata Banerjee, the railways minister and leader of the Trinamool Congress Party, told reporters after the budget presentation that the excise on fuel must be “rolled back” because it’s inflationary. Dravida Munnetra Kazhagam, the government’s second-biggest ally, also opposed the levy. Opposition to economic changes “has happened in earlier coalitions, it is bound to happen,” Mukherjee said. “We shall have to resolve these issues.” He didn’t name the parties who are opposing the government’s insurance and retail policies. Foreign Capital Mukherjee didn’t give a time frame on when he would bring around his allies on loosening foreign investment regulations. Instead, he said he aims to cut bureaucracy to attract more investments from abroad. “Procedural simplification will facilitate foreign direct investments,” Mukherjee said. “India is an important destination for foreign capital. That’s why despite the slowdown in the world economy, our FDI flows remained almost at the same level.” India attracted $20.9 billion in the nine months to Dec. 31 compared with $21.1 billion in the same period last year, according to the finance ministry. China received $68.3 billion during the period, according to the nation’s commerce ministry. The Organization for Economic Cooperation and Development in December said India trails in getting higher FDI because the nation’s policies to attract overseas investors are “restrictive” in comparison with a majority of OECD countries. Loosen Policy In a report titled, “OECD Investment Policy Reviews: India,” the Paris-based organization said India must ease foreign investment rules in insurance, banking and retail to create more jobs and accelerate economic growth. India’s $1.2 trillion economy may expand 7.5 percent in 2010 while China’s $4.3 trillion economy may grow 9 percent this year, the World Bank said on Jan. 20. India wants to grow at a 10 percent pace for more than two decades to cut poverty in the country. The World Bank estimates 76 percent of Indians live on less than $2 a day, compared with 72 percent in the Sub-Saharan African nations. “India may be able to better achieve its objectives through non-discriminatory policies rather than sectoral restrictions on foreign investment,” OECD Secretary-General Angel Gurria said in the report. India’s plan to raise foreign-direct-investment ceiling in insurance to 49 percent from 26 percent has been stuck in parliament for more than three years and is currently being debated by a group of all political parties. Local Laws In retail, local laws are aimed at protecting small shops in Asia’s third-largest economy. India permits overseas chains such as Carrefour and Bentonville, Arkansas-based Wal-Mart to operate as wholesalers and sell groceries and other goods to businesses such as supermarkets, department stores and restaurants. They are barred from opening stores or buying stakes in supermarket chains. Carrefour Chief Executive Officer Lars Olofsson said last week the retailer intends to open a wholesale outlet in India by the middle of this year, according to a company spokeswoman who declined to be identified. Wal-Mart’s first wholesale store started operations in May. Wal-Mart’s focus in India right now is the wholesale joint venture, according to Kevin Gardner, a spokesman for the company. “We are hopeful, however, that India will move ahead with its policies of economic and social reforms,” including allowing foreign direct investment in front-end retail, he said. “This is basically a political issue and in a multi-party coalition government, these problems come,” Mukherjee said. “There are a divergence of views and the best way to resolve these is through discussion.”
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