The coalition government of India took a major hit today with the defection from its ranks of the Trinamool Congress party. The exit of the six Trinamool ministers will not force a new election, but the defection could lead other coalition members to head for the door. None of the other parties in the coalition have threatened to leave, wagering for now that supporting the government is better than causing it to fail.

The Trinamool party wants the government to reverse decisions last week that would make it easier for India to attract foreign direct investment (FDI) in the country’s retail, aviation and broadcasting industries. Wal-Mart Stores Inc. (NYSE: WMT) and other large global retailers like France’s Carrefour, Britain’s Tesco, and Sweden’s IKEA have been pushing for the opportunity to invest in India.

Under the laws adopted last week, the retail giants would be allowed to own majority stakes in their operations in India. The government is also considering allowing foreign investors to own a 49% stake in insurance companies, substantially more than the currently permitted level of 26%.

India is trying to boost its GDP growth rate above its current 6% level, and get back to the 9% growth rate of the past few years.

Paul Ausick

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