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India welcomes foreign retail investment

After years of debate, India’s government has agreed to allow major global retailers such as Wal-Mart and Ikea to invest in its $450bn supermarket sector, as it seeks to revive its flagging economy.

The new policy will allow foreign investment of up to 51% in ‘multi-brand’ retail, including groceries. The measures will also allow for foreign companies to own up to 49% of the value of domestic airlines, 49% of exchanges for trading electric power and up to 74% of broadcast services.

It will require foreign retailers seeking to enter the Indian market to put at least half of their investments into processing and back-end facilities during the first three years and stores will only open in cities with a population of at least one million.

India’s commerce minister Anand Sharma backed the reforms, stating that foreign retailers would bring vital investments such as refrigerated trucks, modern sorting and processing facilities.

Other elements of the policy include that state governments have the power to block major retailers from setting up operations in India and that retailers are required to buy 30% of their supplies in India.

India’s retail sector is currently dominated by small shopkeepers and farmers and its economy is heavily controlled by the government. In recent years, the country has seen a sharp slowdown in economic growth and hence the decision was made to act on proposals to ease market restrictions in the hope of gaining more foreign investment and expertise.  

“The time for big-bang reforms has come and if we go down, we will go down fighting,” said India’s prime minister Manmohan Singh, in a statement. “The cabinet has taken many decisions to bolster economic growth and make India a more attractive destination for foreign investment. I believe these steps will strengthen our growth process and generate employment in these difficult times.”

At the same time, the government announced that it will sell 10% of its stake in Oil India, 12.5% of its stake in aluminium maker Nalco, 9.59% of its stake in Hindustan Cooper and 9.33% of the Metals and Minerals Trading Corporation of India, all of which could raise close to $3bn.

In December last year, India suspended plans to allow foreign investment in the face of a huge political backlash in the country.

Jenni Baker, London