RPT-UPDATE 1-India PM defies calls to roll back retail reform

Newswire

(Repeats story issued late on Tuesday)

* Singh defiant: reform will modernise technology

* And bring access to cheaper food

* Reform remains in limbo; opposition still strong

By Nigam Prusty and Manoj Kumar

NEW DELHI, Nov 29 (Reuters) - Indian Prime Minister Manmohan Singh rejected calls to reverse major retail market reforms, saying the entry of foreign supermarket giants would help modernise the $450 billion sector and fight stubbornly high inflation.

The reforms have drawn howls of protest from opposition parties and from allies within Singh's Congress Party-led coalition. Parliament has been adjourned for 6 days, threatening other major bills, such as one on food subsidies for the poor.

"The increase in foreign direct investment will lead to the introduction of modern technology, remunerative prices for farmers and the common man will get essential commodities at lower prices," Singh told a Congress meeting as party head Sonia Gandhi looked on.

It was his first public statement on the controversy and appeared to show his government would hold firm on one of its boldest economic reforms in years.

"The decision on allowing FDI in retail was not taken in any hurry, but well considered," Singh said, adding that investment rules would protect small businesses.

He predicted his government's policies will soon lead to a sharp drop in inflation, which has topped 9 percent since last year.

The reform, which would allow global chains like Wal-Mart Stores Inc and Carrefour to own up to 51 percent of retail ventures, remains in limbo as talks between the government and political parties on Tuesday failed to make any breakthrough.

The deadlock is likely to prolong the disruption to business in parliament. Delays to an anti-corruption bill due to be passed in the current session risk re-igniting protests that rocked the government in August.

Gandhi, who plays a major role running the government from behind the scenes, also spoke at the rally, her first public appearance since undergoing surgery in the summer.

She made no mention of the retail reform. She is politically to the left of Singh and has been cautious about hurting small retailers. Gandhi appeared to be behind a move earlier to water down the new rules, and insist that foreign retailers source more goods from small Indian businesses.

With a slender parliamentary majority, the government is dependent on its allies, but does not face any immediate threat of losing power.

Singh is unlikely to bow to pressure to reverse the cabinet's decision as this would be a major political set-back and could damage India's image with foreign investors just as Asia's third-largest economy shows signs of slowing.

The Hindu newspaper, quoting unnamed government sources, said Singh could refer the reform to a group of ministers, a traditional way of Congress kicking problems into the grass.

Or the government could just ignore the opposition and move ahead, risking political uproar.

"We are willing to discuss whatever the opposition wants, but they should allow the House to function," said Rajiv Shukla, junior parliamentary affairs minister.

The controversy comes at a bad time for Congress, worried the issue could become a lightning rod for criticism of the government before state elections due next year.

The issue feeds into some deep-seated nationalism of Indian politicians, as well as fears of massive job losses among the millions of small shopkeepers.

"The government has implemented the policy of FDI in retail after lobbying of companies in the U.S. and other countries. We are totally against this," Murli Manohar Joshi, a leader of the main opposition Bharatiya Janata Party, said after Tuesday's talks. (Editing by Ian Geoghegan)

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