Finance minister Pranab Mukherjee, announcing the suspension of FDI reforms

Finance minister Pranab Mukherjee, announcing the suspension of FDI reforms

India's ruling Congress Party has today (7 December) confirmed that plans to allow more foreign investment in the country's retail sector have been suspended.

Speaking in the Indian parliament, Finance Minister Pranab Mukherjee gave official confirmation that the reforms, which have led to fierce opposition among parts of India's political elite, were not going to be forced through.

He said: "The decision to permit 51% FDI in retail trade is suspended until a consensus is developed through consultation among various stakeholders."

It emerged over the weekend that the Indian government was planning to put its reforms, announced two weeks ago, on hold.

On Saturday (3 December), Mamata Banerjee, chief minister of the state of West Bengal and leader of the All India Trinamool Congress party, the second-largest party in India's ruling coalition, said the government had suspended a decision on the reforms "until and unless there is a consensus of all parties on the matter". Today, however, was the first official confirmation that the reforms were being suspended.

Mukherjee said the Indian government would now consult all stakeholders, including the chief ministers of all states and political parties, before going ahead with the policy.

Under the plans, announced 24 November, foreign companies would be able to own 51% of multi-brand retail stores. The Indian government claimed the reforms would create jobs and modernise the country's supply chain. As the ruling was made by the cabinet, it did not to go to a parliamentary vote.

Opponents of greater foreign investment, including key government allies like Banerjee, were furious about the move and began a series of protests that caused parliamentary proceedings to grind to a halt. They claim giving retailers like Wal-Mart Stores, Tesco and Carrefour greater access to Indian's retail market would cripple local businesses.

Sudip Bandhopadhyay, leader of the Trinamool Congress, which strongly opposed the FDI reforms, told the Indo-Asian News Service after the meeting: "It has been accepted. Whatever you may want to call it, holdback or rollback, it is not being implemented."

Some opposition politicians said it signalled the death knell of the proposals.

Jon Copestake, retail industry analyst at the Economist Intelligence Unit (EIU), described the move as "a blow" for global retailers.

He also believes that resurrecting the bill could prove difficult given the timing. State elections are looming next year and weak economic signs in September have made opposition voices difficult to ignore.

"Even if this is just a temporary setback it could prove costly," he adds. "Domestic players such as RP-Sanjiv Goenka Group, Future Group and Bharti Retail will have to wait for planned funding or tie-ins with international partners, which will hamper growth plans in the coming year."