Manmohan Singh’s humiliation is complete. Ten days ago the Indian prime minister announced he would open the retail industry to foreign investment, perhaps the boldest reform since he came to power in 2004. Yesterday he suspended the move, caving to pressure from unions and politicians on both sides of the aisle.
Foreign investment is a huge hornet’s nest in India, but it is worth stirring because the economic benefits would be similarly huge. Retail reform has been debated on India’s cable news programs for a decade, so Mr. Singh should have been prepared to defend the policy. Instead his Congress Party-led government now looks weak and incompetent.
Mr. Singh’s plan to allow foreigners a 51% stake in supermarkets and 100% in single-brand outlets would cut out intermediary traders, hence this interest group’s protests. Politicians have routinely whipped up jingoism by claiming that multinational big-box retailers will shut out mom-and-pop stores, despite studies that suggest the contrary. Yet the Congress Party only attempted to articulate these arguments when the antireform groups began drumming up opposition.
Congress President Sonia Gandhi, right, with Prime Minister Manmohan Singh in New Delhi earlier this year.
Even those who should have supported the move have abandoned it. The opposition right-wing Bharatiya Janata Party has scored points by attacking Mr. Singh. Even a regional party whose voter base would benefit from increased capital and expertise in this business withdrew support last week. The reform seems to have been undone by Mamata Banerjee, a fiery populist leader from West Bengal state and a Congress coalition ally. Government officials now say the plan is on hold until there is consensus.
But New Delhi can’t arrive at a pro-reform consensus until the government shows some leadership. Until last week, Mr. Singh rarely made the case in public for allowing Wal-Mart into India. He also chose to push this reform by executive fiat instead of taking the matter to Parliament.
Meanwhile, the best that can be said about Congress President Sonia Gandhi, who holds the real power in government, is that she has not publicly opposed the reform. That explains why many in the Congress Party have been lukewarm about Wal-Mart.
This problem has plagued policy for the past year. Mrs. Gandhi rules from behind the curtain, but Mr. Singh has failed to seize the moment even when he could. After being besieged by graft scandals, his government could have articulated an anticorruption agenda that involved administrative and economic reform. It didn’t. When civil society groups led by activist Anna Hazare claimed the spotlight to demand a draconian anticorruption measure, Mr. Singh first mishandled the matter and later succumbed to Mr. Hazare’s agenda.
Mr. Singh has refused to claim responsibility for errors made by his own government. That’s why two cabinet reshuffles this past year haven’t helped, and that’s also why his cabinet ministers have been busy passing the buck on who’s to blame. With this attitude of averting responsibility, it’s no surprise the government has wavered on many reforms. When it has finally made a move, it either has been antimarket, for example the land acquisition bill introduced in September, or it has been forced to backtrack.
Political weakness has begun to cost the real economy: Growth for the July-September quarter fell below 7% from a year before. Indians may hail Mr. Singh as the finance minister who ushered in liberalization in 1991, but they are coming to realize that his lack of leadership as prime minister has become a major obstacle to further reform.
News Source: Wall Street Journal
