Singh’s Retail Retreat a ‘Nail in the Coffin’

Prime Minister Manmohan Singh’s decision to backtrack on plans to let overseas retailers expand in India may undermine efforts to revive growth and curb inflation, while deepening a yearlong paralysis in government.

The 79-year-old Singh, credited with sparking India’s economic transformation when finance minister two decades ago, yesterday bowed to opposition protests that had forced repeated adjournments of parliament since the Nov. 24 move to allow foreign investment in multibrand retail. Finance Minister Pranab Mukherjee told lawmakers the decision was suspended until a consensus could be reached.

The reversal indefinitely puts off an influx of foreign investment from companies including Wal-Mart Stores Inc. (WMT) and Tesco Plc (TSCO) that are bidding to enter the $396 billion market, at a time when the rupee is already trading near a record low. It also adds to a list of unfinished economic initiatives that includes a proposed tax overhaul and changes to how land is acquired for infrastructure projects.

“It is frustrating to look at unresolved issues and know that they’re resolvable if you can get some leadership and orientation around them,” John Flannery, chief executive officer for General Electric Co. (GE)’s India unit, said in an interview yesterday.

India’s $1.7 trillion economy expanded last quarter at the slowest pace in almost two years after the central bank raised interest rates to slow inflation. The rupee has fallen almost 14 percent this year as investors sold emerging-market assets on concern Europe’s debt crisis will lead to a global recession.

Local Suppliers

In an attempt to kick start the economy, Singh had approved allowing overseas companies including Carrefour SA (CA) to own as much as 51 percent of retailers selling more than one brand, as long as they sourced 30 percent of their products from local suppliers. International retailers are currently restricted to wholesale operations.

Singh argued that opening the retail sector to foreign investors would tame inflation and reduce food wastage in a country where 40 percent of vegetables rot before they can be sold. Foreign companies would bring expertise growing crops and developing a supply chain to keep food fresh, he said at a rally of his ruling Congress party in New Delhi last month.

The government immediately ran into resistance from its two largest coalition partners, Trinamool Congress and the Dravida Munnetra Kazhagam, as well as from opposition parties. Small shopkeepers, who said the plan would wipe out their jobs, joined a one-day union strike Dec. 1 to protest the move.
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Japan Machinery Orders Unexpectedly Slide on Strong Yen, Global Slowdown

Japan’s machinery orders unexpectedly fell for a second straight month in October, signaling that a slowing global economy and the strong yen are prompting companies to postpone investment.

Bookings, an indicator of capital spending, decreased 6.9 percent from a month earlier, the Cabinet Office said in Tokyo today, a larger decline than predicted by all 27 economists surveyed by Bloomberg News.

Shares in machinery makers including Fanuc Corp. (6954) and Tokyo Electron Ltd. (8035) fell after the report. The government said today that exports in the first 20 days of November fell at the fastest pace since May, adding to signs that Europe’s fiscal crisis and a yen that rose to a postwar record on Oct. 31 against the dollar are weighing on demand.

“Nobody is really forecasting Europe will break up, but corporate managers have to prepare for the worst,” said Takuji Okubo, chief Japan economist in Tokyo at Societe Generale SA. “It’s understandable that they would like to delay large capital investment decisions.”

The yen traded at 77.64 per dollar as of 3:15 p.m. in Tokyo compared with its post World War II record of 75.35 and the Nikkei 225 Stock Average slid 0.7 percent to 8,664.58.
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Australia’s Worst Jobs Growth in 15 Years Increases Prospect of Rate Cuts
Australia is headed for its worst year of jobs growth in 15 years, boosting prospects central bank Governor Glenn Stevens will extend interest-rate cuts into 2012 as inflation pressure eases.

Payrolls gained 44,700 through the first 11 months of this year, on pace for the smallest growth since 1996 after a record 362,300 increase in 2010, government data released today showed. The report contrasted with figures yesterday showing the biggest six-month gain in economic growth since March 2007.

The only Group of 10 economy to avoid the 2009 global recession is ending the year with signs of slower growth as Europe’s fiscal crisis and a stronger currency weigh on tourism, retailers and manufacturers. The nation’s unemployment rate advanced last month to 5.3 percent, matching the highest level this year.
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Indonesia Central Bank Pauses Interest-Rate Cuts to Assess Inflation Risk

Indonesia’s central bank kept its benchmark interest rate unchanged, pausing after cutting borrowing costs in the previous two meetings to assess the inflation risk as the rupiah falls.

Governor Darmin Nasution and his board kept the reference rate at 6 percent, Bank Indonesia said in a statement in Jakarta today. The decision was predicted by 17 of 22 economists surveyed by Bloomberg News, with the rest predicting a quarter- percentage-point cut.

The nation’s currency has slumped more than 5 percent in the past three months, the third-worst performer in Asia, threatening to push up imported inflation even as the protracted European debt crisis hurts global growth. New Zealand and South Korea also kept rates unchanged today, as the region’s policy makers juggle the need to guard against price gains with increasing pressure to protect their economies.
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Bank of Korea Holds Rate for Sixth Month as Europe Crisis Imperils Growth

The Bank of Korea refrained from raising borrowing costs for a sixth straight month as the deepening European debt crisis and global slowdown imperil exports and growth in Asia’s fourth-biggest economy.

Governor Kim Choong Soo and his board kept the benchmark seven-day repurchase rate unchanged at 3.25 percent, saying in a statement in Seoul that “in terms of the upside and downside risks to the future growth path, the downside dominates.”

“Downside risks to growth are high, due mostly to the sovereign debt crisis in Europe and to the possibility of slumps in major country economies and the unrest in international financial markets continuing,” the central bank said in the statement released in Seoul. Monetary policy will be conducted “so as to firmly anchor the basis for price stability amid the continuing sound growth of the economy.”

The decision to hold rates aligns South Korea with efforts in countries ranging from China to Australia to shield Asia- Pacific economies from Europe’s deepening fiscal turmoil. Tomorrow the Bank of Korea may lower its growth outlook for this year and next because of the global slowdown, Lee Jong Kyu, deputy director-general at the bank, said in an interview in Bali on Dec. 2.
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