Indian Prime Minister Manmohan Singh leaves after making a statement to… (Manish Swarup/AP )
NEW DELHI — India’s beleaguered government announced a slew of sweeping economic reforms Friday, including the long-awaited decision to allow foreign supermarket chains such as Wal-Mart and Britain’s Tesco to set up businesses in which they hold majority ownership.
The changes open the door to foreign investment in retail, aviation, broadcast and power exchanges and are the biggest and arguably toughest economic reforms since Prime Minister Manmohan Singh took over in 2004.
Analysts have been pleading with the government to institute what has come to be called the second wave of reforms in the past eight years. The last big-ticket decisions were when India allowed 74 percent investment in the telecom industry and sold several government-owned companies to private Indian investors.
Perhaps the boldest and most contentious plan announced Friday was to let foreign investors own 51 percent of supermarket chains they set up with a local Indian partner. To appease critics, India’s commerce minister, Anand Sharma, said state governments can reject the foreign investment. So far, nine state governments have supported the announcement and six have opposed it.
The Confederation of Indian Industry called the reform package a “huge mood lifter.”
“The despondency that had set in owing to absence of policy announcements would certainly be addressed to some extent,” said Chandrajit Banerjee, the confederation’s director general.
Sharma said the government consulted with various partners, traders and farmers across India before announcing its decisions.
“The response has been a mixed one, but when a major policy initiative is taken, that is how the responses come in,” Sharma said. “It will generate large numbers of jobs in rural India for our young men and women.”
Tough decisions
After being on the defensive for two years over slowing economic growth, high inflation and growing corruption scandals, India’s coalition government finally appeared determined to make tough decisions this week.
On Thursday, the government raised the price of diesel, known here as the “poor man’s petrol,” and came under a volley of criticism from several political parties, traders and consumer groups, and transporters. A few weeks ago, the government increased the cost of gasoline but did not touch diesel prices. Both prices are kept artificially low in India through heavy federal subsidies to oil companies.
On Friday, the government also announced that it would allow private Indian companies to buy minority stakes in government-owned aluminum, oil, copper and mining companies.
“This is a strong signal that the government has shaken off some of that slumber that everybody was talking about,” said Raghav Gupta, principal at the market consulting firm Booz & Co. “It will take many, many years for it to have an impact on inflation or economic growth. But this is an important move.”
The actions come as Singh’s popularity has plunged dramatically over accusations of ineffective leadership and questions about corruption within his government.According to a recent Washington Post profile, Singh denied an auditor’s claims last month that the national treasury had been cheated of billions of dollars after the government gave concessions to private coal-mining companies for a nominal charge.
Speaking at the Planning Commission meeting in New Dehli on Saturday, Singh said that government’s rising deficit needs to be stemmed, and his decision to hike the highly subsidized diesel prices this week is “an important step in the right direction.”
He urged Indians to fully understand the implications of “policy logjam.”
“To achieve the target of 8.2 percent growth we need to revive investment in the economy,” Singh said. “It will take courage and some risks but it should be our endeavor to ensure that it materializes. The country deserves no less.”
He said that he will personally speed up the progress of infrastructure projects because “it will also boost investor sentiment to raise the overall rate of investment.”
On his Twitter feed Friday, Singh called on the public “to support the steps we have taken in national interest.”
“The Cabinet has taken many decisions today to bolster economic growth and make India a more attractive destination for foreign investment,” the prime minister said on Twitter. “I believe that these steps will help strengthen our growth process and generate employment in these difficult times.”
Analysts in India say that in the next eight years, the country could attract more than $10 billion in the retail sector.
Economic slowdown
Facing tepid growth and the collapse of its currency, the rupee, the world’s second most populous nation is among the developing countries, including China and Brazil, that have seen significant economic slowdowns at a time when Europe faces a financial crisis and the U.S. economic recovery remains steady but sluggish.
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