New Delhi:
At a meeting of all Congress MPs this morning, Finance Minister Pranab Mukherjee dissected the government's disastrous attempt to allow reform in retail. Mr Mukherjee told the MPs that the decision to allow 51% foreign ownership of multi-brand stores was not incorrect, but that the government has put it on hold to avoid mid-term elections.
The Prime Minister's authority has been severely bruised by the government's capitulation to opposition - yesterday, Mr Mukherjee formally informed Parliament that "the decision to permit 51% FDI in retail trade is suspended till a consensus is developed through consultations among various stakeholders."
The PM had defended his new policy, which would have allowed international super-chains like Wal-Mart and Tesco to sell directly to Indian consumers. His reforms were seen by India Inc as a much-needed CPR for an administration that had sunk into "policy paralysis." But unmitigated pressure from Mamata Banerjee forced the government to suspend its two-week old initiative. With 18 Lok Sabha MPs, Ms Banerjee is the second-largest member of the ruling UPA. When she made it clear that she would not vote in support of FDI in retail, the government was cornered. Opposition parties like the BJP and Left had said they would not allow Parliament to get to work unless the government reversed its decision, or put its policy to a vote. Without Ms Banerjee, the government would just about make it past the half-way mark needed to prove it has the confidence of the House. The loss of face would be substantial.
The government insists that its FDI policy has not been cancelled - just suspended till there is agreement among state governments and political parties over how to proceed. But five states- including the all-important Uttar Pradesh- are heading for elections. And sources say that the Congress will not risk further controversy over FDI till the results of the UP elections are known.