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India throws open retail sector to foreign players

November 24, 2011

Indian customers browse the shelves inside a departmental store in New Delhi. -AFP Photo

NEW DELHI: India's cabinet on Thursday cleared a plan to throw open the nation's huge retail sector to global supermarket chains in a reform that could herald a consumer revolution.

The government cabinet approved a proposal to allow international firms to hold a 51 per cent stake in multi-brand retailers, a government official told AFP, in one of the Indian government's boldest economic reforms.

It also raised the foreign investment cap to 100 per cent from 51 per cent at present for single-brand retail operations such as Gucci, Nokia or Reebok, said the government official, speaking on condition of anonymity.

Gibson Vedamani, board member of the Retailers Association of India, told AFP: “Consumers will have many more choices, it will truly be a borderless world in terms of products available.”

Foreign multinationals have lobbied for years to be able to sell directly to consumers in the world's second most populous nation, seeking access to a market estimated by consultancy McKinsey to be worth $450 billion a year.

The late evening cabinet decision came as the Congress-led government has been seeking to fend off charges of “policy paralysis” after being engulfed in a string of corruption scandals.

Commerce Minister Anand Sharma told AFP that details of the cabinet's decision would be announced on Friday in parliament.

“I cannot say more now because parliament is sitting,” he said.

Multi-brand foreign groups such as US-based Wal-Mart currently operate as wholesalers in India but are prevented from selling directly to the public. The vast majority of consumers currently shop at small local markets.

Critics have fretted that large, air-conditioned stores will drive small family-owned stores, which currently dominate the market, out of business, despite assurances from industry figures that the market is big enough to embrace all players.

The main opposition Hindu nationalist Bharatiya Janata Party (BJP) and left-wing parties have vowed to strongly oppose the plan, calling it “a tool to kill the domestic (retail) industry”.

“If foreign direct investment in the retail sector is allowed, small traders will lose their jobs as their products will not be able to compete,”said Murli Manohar Joshi, a veteran leader of the BJP.