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India to relax foreign investment regulations
A slowing economy has forced the Indian government to resume its economic reform agenda, as Girish Sawlani reports.

A slowing economy has forced the Indian government to resume its economic reform agenda, which includes opening up insurance, pension and retail sectors to foreign investment.

But the move is being met with fierce resistance from opposition parties, as well as tens of thousands of people taking to the streets.

Girish Sawlani reports.
JIM MIDDLETON, PRESENTER: After years of inaction, India's government has resumed its economic reform agenda. Aimed notably at opening up the country's airlines, telecommunications and retail sectors to foreign investors.
The reforms are seen as a crucial part of efforts to boost a slowing economy.

They face fierce resistance from opposition parties and tens of thousands of people have taken to the streets in protest.

Girish Sawlani reports.

(Excerpt from Manmohan Singh's television announcement plays)

MANMOHAN SINGH, INDIAN PRIME MINISTER: My dear brothers and sisters, I'm speaking to you tonight to explain the reasons for some important economic policy decisions government has recently taken. Some political parties have opposed them. You have a right to know the truth about why we have taken these decisions.

(End excerpt)

GIRISH SAWLANI, REPORTER: A plea from the prime minister to his nation.

Last month Manmohan Singh announced a wave of historic reforms designed to revive India's slowing economy and spur foreign investment. As part of the measures, foreign firms can now purchase up to 49 per cent of domestic airlines. A move aimed at changing the fortunes of ailing local carriers. In addition, foreign entities will also be allowed to buy minority stakes in local media and power trading companies.

But it's the reforms in the retail sector that have generated the biggest headlines and reaction. The prime minister and his cabinet have approved a plan to allow 51 per cent of foreign direct investment in multi brand retail. This effectively opens up India's doors to international giants such as Carrefour and Walmart, just as long as they spend half their investments in building infrastructure such as warehouses, transport lines and cold storages to reduce loss of agricultural produce.

RAJ JAIN, PRESIDENT, WAMPART INDIA: As (inaudible) retailing matures in this country, as the supply chains mature in this country, there'd be enormous efficiencies which will be driven from producers whether farmers or small manufacturers to the end customers. And, therefore, it will reduce the prices of goods.

GIRISH SAWLANI: But small business owners are jittery.

VIJAY KUMAR JAIN, GROCER (translation): Foreign investment will fuel unemployment and business will be hurt to such an extent that the small shopkeepers will be forced to close their shops because they will not be able to meet their expenses.

GIRISH SAWLANI: Retail experts, however, say it's a win, win situation.

SHARAD BEHROTRA, COMMODITIES TRADER: With the growth of population in India, there's enough room for everyone. So I don't see that these guys are going to be driven out of business either.

MOHIT BAHL, RETAIL EXPERT, KPMG: A lot of the players, both Indian and international, will feel a lot more comfortable making investments in both front end and back end retail in the light of the fact of this policy clarity.

GIRISH SAWLANI: And that's the message the prime minister wants to convey.

(Excerpt from Manmohan Singh's television announcement plays)

MANMOHAN SINGH: Our national capital, Dehli, has many new shopping centres but it has also seen a threefold increase in small shops in recent years. In a growing economy there's enough space for big and small to grow. The fear that small retailers will be wiped out is completely baseless.

(Excerpt ends)

(Footage of protests plays)

GIRISH SAWLANI: But reforms introduced so far have led to widespread protest across the country.

On the political front, the ruling Congress Party has paid dearly, losing one of its key coalition allies, the Trinamool Congress Party led by the chief minister of West Bengal State.

MAMATA BANERJEE, WEST BENGAL CHIEF MINISTER (translation): They have sold the nation, they have sold the entire nation. We will not accept this government. A government that sells the nation, the people will sell that government.

GIRISH SAWLANI: And India's main opposition has been quick to capitalise.

SIDDHARTH LODHI, BHARATIYA JANATA PARTY (translation): The Congress government has prove their focus is not on the people of the country. On moral grounds the prime minister should resign immediately and should apologise to the people.

DR PRADEEP TANEJA, AUSTRALIA-INDIA INSTITUTE: The BJP (Bharatiya Janata Party), when they were in power under the prime ministership of Bihari Vajpayee, they opened up the economy. They did not go back on the reforms that were implemented by Narasimha Rao. They in fact continued the process of reform.

I think they're being opportunistic in criticising or attacking these policies. And I think once they come back to power, if they do after the next election, I think they're more likely to continue with these policies.

GIRISH SAWLANI: Prime minister Manmohan Singh now has an even steeper hill to climb as his government plans to allow foreign players to buy into the insurance and pension sectors.

While changes in aviation and retail only required cabinet approval, the second wave of reforms need to be passed through parliament.

DR PRADEEP TANEJA: I think it's going to be tough, because at the moment the government lacks majority in the upper house. They lack majority in the lower house also, but it's likely that they'll get the support of the Samajwadi Party of Mohamman (phonetic) Singh.

But in the upper house, the Rajya Sabha, in the things might be tougher. I'm not too sure government would be able to get it through the upper house before the next election.

GIRISH SAWLANI: But it's not just the lawmakers the prime minister needs to convince. Dr Taneja says Manmohan Singh will need to convince the rural population that what he's doing will be in their interests and will have to do a much better job in selling his policies.

The last time major reforms were introduced was in the late 1990s when the BJP was in power. But vocal opposition to those changes was a key factor in the BJP's electoral defeat in 2004.

(Footage of protests plays)

It's a predicament Congress is now facing and one it's desperate to avoid at the next election.
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