India opens retail, aviation industries to Wal-Mart, others

India threw open its retail and aviation industries to foreign investment as a newly assertive government bids to shake off a sense of crisis over the slowing economy and a stalled agenda, risking a political backlash.

In the biggest policy push of Prime Minister Manmohan Singh’s second term, proposals to allow overseas retailers like Wal-Mart Stores Inc. and Carrefour SA to own 51% of supermarket chains, shelved last year after alliance partners threatened to revolt, have been enforced, Commerce Minister Anand Sharma said yesterday. Overseas airlines are allowed to own 49% of Indian carriers, he said.

The measures “will help change the perception about the government that it doesn’t have the ability to take decisions,” said Samiran Chakraborty, a Mumbai-based economist at Standard Chartered Plc. “If this changes the perception that investors have about India, this could be positive for inflows, equities and for the currency.”

Singh and his ruling Congress party have just 18 months to reverse shrinking support and restore confidence in their economic management before the next general election.

Together with a Sept. 13 deficit-reducing 14% increase in diesel prices, the decisions announced by Sharma in New Delhi mark a sustained effort to ease criticism of Singh’s administration. The government has been assailed by two years of corruption allegations, while its agenda has been stymied by opposition parties and coalition allies alike.

Offering an olive branch to regional leaders who have said they’ll oppose the arrival of large overseas retail chains over concerns they will put millions of small shopkeepers out of work, Sharma said it will be up to state governments to decide if they want to adopt the policy. Indian airlines, which have delayed salaries and defaulted on payments to airports and fuel suppliers because of cash shortages, will now be free to seek foreign investors.

“These steps will help strengthen our growth process and generate employment in these difficult times,” Singh said in comments posted by his office on his Twitter Inc. account.

The higher fuel prices brought calls for a rollback from Singh’s allies, pressure he has in the past responded to by lowering the size of the increases. He may face even stiffer opposition to the biggest change to foreign investment caps since the government was re-elected in 2009.

Allies such as Mamata Banerjee, the chief minister of West Bengal state, have said they will continue to oppose moves to allow overseas companies Wal-Mart and others into the country. Banerjee’s party yesterday gave the government 72 hours to reverse the policy changes, Press Trust of India reported.

“There seems to be agreement among policy makers that growth is taking a huge hit,” N.R. Bhanumurthy, an economist at the National Institute of Public Finance and Policy in New Delhi, said yesterday (Sept. 13) before the foreign investment announcement. “If you don’t take policy measures you’re not going to be able to control the slide.”

Singh’s bid to implement policies to revive investment amid a rating downgrade threat have been derailed by his fractious ruling coalition and graft allegations that paralyzed Parliament during its last session. Inflation near 7% has limited room for interest-rate cuts in an economy growing at near its slowest pace in three years.

In the latest sign of the frustration felt by voters toward Congress, only 38% of Indians said they were satisfied with the country’s direction, according to a Pew Research Center survey. That was down from 51% a year earlier, and was the largest drop among the 17 countries in the survey, including China, the U.S. and Brazil.

Singh, the architect of India’s 1990s economic opening who has been prime minister since 2004, is targeting a budget deficit of 5.1% of gross domestic product in the year ending March from 5.8% a year earlier. Asia’s third- largest economy grew 5.5% in the three months ended June 30 after expanding 5.3% in the previous quarter, the least in three years.

The budget shortfall and a deficit in the current account, the broadest measure of trade, led Standard & Poor’s and Fitch Ratings to say earlier this year that they may strip India of its investment-grade credit rating.