Indian store shares slump on opposition to FDI in retail

Shares of leading Indian retailers tumbled on Monday after fresh opposition emerged to the government's hopes of opening up the nation's retail sector to competition from foreign supermarkets.

Shares in leading retailers Pantaloon Retail, Tata Group's Trent and Shoppers Stop, which are keen to get new capital to bolster their balance sheets, slipped by up to eight percent.

The fall came after the socialist Samajwadi Party and communist parties wrote a joint letter to Prime Minister Manmohan Singh, saying politicians across the spectrum opposed further liberalisation of the vast retail sector.

"We urge the government not to open up the retail trade to Foreign Direct Investment (FDI) any further," the letter said.

The Samajwadi Party, led by Mulayam Singh Yadav, is not a member of the ruling Congress-led coalition but supports it from the outside.

Investor hopes have been rising that the government could take new action on introducing long-delayed economic reforms now that Singh has taken over the reins of the finance ministry.

As finance minister in 1991 Singh ignited the fuse for India's growth by endorsing free markets and cutting through suffocating red tape.

Former finance minister Pranab Mukherjee, who was elected India's president on Sunday, failed -- or was unwilling, some critics say -- to push through steps to open up India's still largely closed economy.

Some experts say the entry of multinational retail giants into India's multi-brand retail sector would create millions of jobs in coming years and boost India's investor allure.

But critics fear the effect of such a move on small retailers who still dominate India's commercial landscape.

The Samajwadi Party and the communist parties said further foreign investment in the retail sector would hurt the interests of about 40 million people.

The government had indicated that once the presidential polls were out of the way it would start the ball rolling to introduce a series of reforms to revive what Singh has called the Indian economy's "animal spirit".

But the new opposition to opening up the retail sector and divisions in the ruling Congress coalition has "again brought an air of uncertainty to the flexibility (Singh) has on revving up the pace of reforms", said Ajay Bodke, investment strategist at Mumbai brokerage Prabhudas Lilladher.

In December, the government said it planned to allow in foreign supermarket chains such as Wal-Mart, but it backtracked two weeks later amid parliamentary opposition and protests from small shopkeepers.

Other difficult reforms pending include raising the FDI cap in insurance and allowing foreign airlines to invest in domestic carriers.

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