Government wins multi-brand retail FDI vote in Rajya Sabha

The government won a second parliament vote on Friday on allowing foreign supermarkets into the country, paving the way for Prime Minister Manmohan Singh to press ahead with more reforms, including freeing up a cash-strapped insurance sector.

While the Rajya Sabha vote was symbolic, the government's victory is a boost for its push to implement a controversial economic reform agenda that is seen as crucial to reviving growth and reducing a bloated fiscal deficit.

The government had already won a vote on retail reform in the Lok Sabha two days earlier. The policy will allow global retailers such as Wal-Mart Stores Inc to set up shop in the country's $450 billion retail sector, and is aimed at drawing more overseas investment and taming inflation.

Although both votes were non-binding, defeat would have piled pressure on Singh to roll back the measure.

Once again, Singh's fragile coalition government relied on Friday on the outside support of Samajwadi Party (SP) and Bahujan Samaj Party (BSP) based in Uttar Pradesh, underscoring the extent to which it is at the mercy of powerful regional groups to push through legislation.

SHOUTING AND WALKOUTS

In the shrinking window before a general election that is due in just over a year, Singh's minority government wants to push reforms such as allowing more foreign investment in its insurance and pension sectors, and simplifying tax laws.

But these are likely to run into a wall of opposition from rival parties that say such market-friendly reforms will come at the expense of domestic businesses.

Singh's Congress party has 10 days left before the end of the current parliament session to try to pass legislation.

However, the session could once again see the kind of disruption and walkouts that have repeatedly stalled business over the last couple of years. Lawmakers have used them to air grievances on anything from corruption to demands for the creation of a new state in the south.

Moreover, the main opposition Bharatiya Janata Party (BJP), having seen its motion to block retail reform defeated, is likely to obstruct moves to allow foreign direct investment (FDI) in the insurance sector. The BJP wants a 26 per cent cap set on investment, against the government's proposed 49 per cent.

"We will oppose any move by the government against the recommendations of the standing committee on finance which has said it should be 26 per cent," Prakash Javdekar, a BJP leader and spokesman for the party, told Reuters on Friday.

To carry on with reforms, Singh's Congress party will have to rely on the support of the BSP and the SP to defeat the BJP.

In Friday's vote, BSP MPs voted with the government and SP lawmakers abstained, handing it a 123-109 victory.

"The regional parties supported the Congress party on retail reform and my feeling is that they will continue to do so because they don't want to give BJP any political advantage," said political analyst Amulya Ganguli.

India's economy is set to grow at its slowest pace in a decade in this fiscal year, and the government's overspend on subsidies on fuel and food has prompted global ratings agencies to warn of a downgrade.

Copyright @ Thomson Reuters 2012