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India FDI Clears Final Hurdle

After a politically charged debate for the last two days, a final vote made the mandate on foreign direct investment in retail clear.

NEW DELHI — After a politically charged debate for the last two days in the upper house of Parliament, the Rajya Sabha, a final vote Friday afternoon made the mandate on foreign direct investment in retail clear: the debate is over and it’s time to get down to business.

Global retailers now will be able to own 51 percent of multibrand retailers, giving them a piece of India’s $500 billion retail market.

The win came by a relatively small margin: 123 votes to 109 with nine abstentions.

The victory came even though the ruling party does not have a majority in the Rajya Sabha. Events began to turn in favor of the ruling coalition when Kumari Mayawati, who heads the Bahujan Samaj Party, said her party would vote for FDI. Further support came when the Samajwadi Party said it would abstain from voting.

Anand Sharma, Commerce Minister, said outside Parliament, on Friday: “This is an elected government. It has the mandate to rule. We had got a victory in the Lok Sabha [lower house] and it was a decisive victory as today in the Rajya Sabha. In the following week we will bring more financial legislation on economic reforms.”

“This is a great opportunity for government to push much-needed reforms which have been pending and hurting the growth of the nation,” D. S. Rawat, secretary general of The Associated Chambers of Commerce and Industry of India, observed while pointing out that the decision would help economic growth. ASSOCHAM is the umbrella body of chambers of commerce in India.

The government of Prime Minister Manmohan Singh, which has been repeatedly described as “indolent,” “indecisive” and “flip-flopping on key issues,” has finally taken a stand and stuck to it, even under extreme pressure. Analysts commented that the government’s insistence on FDI in multibrand retail might be a ploy to cover up the charges of corruption that have been coming up against it, but business people and retailers are hopeful that the situation will bode well for the economy, one that will help employment as well as help fight inflation and bring in valuable know-how and higher standards. “Wal-Mart went to China 20 years ago, and is now 5 percent of the market in China. It procures 60 percent of the global procurement from China, so China benefits the most,” Law Minister Ashwani Kumar said during the debate in the Rajya Sabha.

But some economists have warned the new FDI rules have conditions that could be too stringent to really bring significant benefits. Global retailers can only invest in cities with a population of more than one million, which brings the target cities to a shortlist of 54. In addition, state government can decide whether they want overseas retailers to set up in their states. Only 20 have said yes to this so far. Single-brand retailers, which are now allowed to have 100 percent FDI, must source 30 percent from within India.