Gold rush as India opens door to global retailers

Government defends policy, saying it will protect small retailers and create new jobs

The Indian authorities have signalled their intention to open up the country's retail sector, worth an estimated £258bn, to international brands such as Tesco and Wal-Mart who have been salivating over the prospect for many years.

The cabinet took the decision to change regulations to allow 51 per cent foreign ownership of supermarkets in cities where there are more than 1 million people. The minimum investment will be £65m and half of this would have to be invested in transport, storage and other infrastructure.

The commerce minister Anand Sharma yesterday sought to reassure critics of the plan, saying that small and medium domestic retailers would not be affected and that the move would help to create 10 million jobs over three years. But his effort went in vain: parliamentarians in both the upper and lower house erupted in noisy anger, tearing up copies of his statement and obstructing proceedings. The session was adjourned until Monday.

The opening up of India's retail market has long been the dream of global chains such as Carrefour, who have always said they could help to modernise infrastructure in a country where a reported third of produce rots on the way to market because of poor-quality roads and insufficient refrigeration. Foreign firms, which at the moment are able to partner with Indian businesses to operate wholesale operations, would have to help develop supply chains.

International retailers yesterday welcomed the decision, while saying they needed more details from the government. A spokesman for Tesco said: "Allowing foreign direct investment in retail would be good news for Indian consumers and businesses and we await further details on any conditions. We already have a franchise arrangement with Tata's Star Bazaar stores. Learning about India and serving more customers every month is a win-win for customers, suppliers, Tesco and Tata."

Rajan Bharti Mittal, director of Bharti Enterprises, which has 13 joint ventures with Wal-Mart, described the announcement as a "major landmark in India's economic reforms process".

The government said a number of safeguards had been built into the plans to protect Indian firms and business. One of the rules is that 30 per cent of produce sourced by any foreign retailer would have to come from small or medium operations.

While the political opposition voiced its strident objection to the new reg- ulations, the impact on small bus- inesses may not be as drastic as some fear. Komal Kumar, a shopkeeper in South Delhi, said he welcomed the announcement, which he said re- flected well on India and would bring in large investment.

"Everyone will get opportunities – constructors, labourers – there will be jobs once the operations start," he said. "Also, small shopkeepers like me will not be affected. Foreign companies will not be trying to compete with small operations. Perhaps the [larger Indian retailers] will be affected, but not small shops."

In addition to opening up the retail sector, the Indian government also indicated this month that it was prepared to allow 26 per cent foreign investment in pension fund management. According to Associated Press, this was another plank of the second wave of economic reforms promised by the Congress Party-led government. They follow a round of liberalisation forced by a balance of payments crisis in the 1990s.