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India defends rules for foreign retailers

October 10, 2013

WASHINGTON (AP) — India on Thursday defended government regulations designed to protect local businesses that have prompted U.S. retail giant Wal-Mart to hold back on opening superstores there.

Finance Minister Palaniappan Chidambaram told a Washington think tank that the rules weren’t too restrictive. He said he remained confident that one or two multi-brand retailers would enter the Indian market in the fiscal year ending March 2014. He did not name them.

In a politically sensitive move, India last year gave the green light for international companies to open multibrand retail stores, but to allay concerns about the impact on small traders and family-run shops, those companies would have to source 30 percent of their products from local small and medium-sized businesses.

So far, no large foreign chains have taken the plunge. On Wednesday, Wal-Mart Stores said the local-sourcing regulations mean it cannot move forward with its plans to expand into retail in India — a blow to the government’s efforts to attract foreign investment to a market of 1.2 billion people. Wal-Mart already runs a wholesaling joint venture in India.

Chidambaram alluded to the political sensitivities in his comments at the Carnegie Endowment for International Peace.

“I sincerely hope that an investor will look at the practical difficulties that a policymaker has in India and accept policies as they are made and as they are, rather than hope for the ideal policy,” he said, without mentioning a specific company.

He said experiences in the auto and defense sectors, where foreign companies had teamed up with local companies and helped build their local production capacities, showed that requirements on local content could be satisfied.

The government of Prime Minister Manmohan Singh has sought to ease foreign investment restrictions and institute other reforms to spur the economy which has slowed in the past two years after two decades of rapid growth.

Chidambaram said in the first quarter of the current fiscal year, GDP growth was just 4.4 percent. But he predicted growth for the full year at between 5.0 and 5.5 percent, citing the impact of reform measures, export growth, and good rains that would boost farm output.

The International Monetary Fund on Tuesday, however, slashed its forecast for India’s growth by 1.8 percentage points to 3.8 percent this year.

Among the concerns weighing on India’s economy have been expectations the U.S. will pull back its loose monetary policy that has poured funds into emerging markets.

Chidambaram, who will join annual U.S.-India finance talks this weekend, said that a May announcement that the Federal Reserve would begin to reduce its bond-buying program had taken other countries by surprise, but the consequent postponing of the move has buoyed hopes of recovery in the global economy.

He said markets have now factored in the eventual “tapering” of that policy, which he expected to happen in December or January, giving India time to prepare through reforms and building its own reserves.

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