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Indian ruling party head sounds alarm over foreign firms

The leader of India's ruling Congress party has sounded an alarm over fears that big foreign firms looking to enter the country's retail sector could force millions of mom-and-pop stores to close.

Congress President Sonia Gandhi has called on the government to "consider having the relevant issues properly examined before further decisions" are taken on giving international retailers more access to India's lucrative retail sector.

Gandhi turned down the premier's job when Congress won office but is thought to wield great political power as Congress' leader, which makes her interjection a significant development.

Her call this week came amid reports that Wal-Mart vice chairman Michael Duke was due in India on Feb. 22 to partner formally with Bharti Enterprises to start a nationwide store chain.

Gandhi said in a letter to Prime Minister Manmohan Singh that she had "received suggestions from many quarters about the desirability to first study the possible impact of transnational supermarkets on the livelihood security of those engaged in small-scale operations."

Saumitra Chaudhuari, an economic adviser with ratings agency ICRA, said the issue of opening the retail sector to overseas retail giants was causing political discomfort.

"I think she wants the government to tread carefully, she basically wants to make sure it does its `due diligence' as companies say," Chaudhuari said.

India's 15 million corner shops fear competition from giant retailers. They worry that big stores will drive them out of business.

The government still bans foreign retail chains from selling directly to consumers. But they are using a backdoor to enter the market by starting wholesale and sourcing firms, which supply a local retail partner.

Giant retailers like Wal-Mart, France's Carrefour, Germany's Metro and Britain's Tesco have been making a beeline for India's US$300 billion retail industry in what commentators have dubbed the "great Indian retail gold rush."

Organized retail -- sales from chain stores -- still only make up around three percent of the Indian sector.

Congress said party leaders were seeking ways for small shopkeepers to be protected from an expected further loosening of the government's foreign direct investment (FDI) policy for the retail sector.

"We're not for a ban, but Congress wants safeguards in place before implementation of the FDI policy," Congress spokesman Abhishek Manu Singhvi told reporters this week.

Analysts say Gandhi, a canny campaigner who engineered Congress' come-from-behind win in 2004, wants to tread carefully with elections this year in four states, including politically pivotal Uttar Pradesh.

Analysts say she is mindful that India's poor masses, angered they were not sharing in India's growing prosperity, ousted the previous Bharatiya Janata Party government.

"She knows no election can be won when agriculturists or shopkeepers or both turn against you," the Times of India newspaper said in an editorial.
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