India's government has once again cleared a controversial plan to open up its lucrative retail sector to global supermarket chains.

Last year, the government suspended a similar plan after fierce opposition from its allies and political rivals.

International firms such as Walmart and Tesco will now be able to buy up to a 51% stake in multi-brand retailers.

Analysts say the government has reintroduced the measure in an effort to revive a flagging economy.

Prime Minister Manmohan Singh said: "I believe that these steps will help strengthen our growth process and generate employment in these difficult times."

Strong opposition
The decision was one of several key reforms announced by the government. It also approved a plan to allow foreign airlines to buy 49% stakes in local carriers, in the hope that this will boost the country's troubled aviation sector.

The decision to open up India's lucrative retail sector to international supermarket chains has come as a major surprise. It was among a slew of key economic reforms announced by the government and is seen as vital to reviving the country's slowing economy.

For months the decision has been held up by political gridlock, especially because it was opposed by the government's own allies. But it now appears the government has decided to bite the bullet, especially as its own credibility - and that of Manmohan Singh - is at an all-time low following a series of financial scandals.

Much will now depend on Mr Singh's ability to keep his disparate coalition together, as opposition to these measures is expected to be fierce.

Many will see this as a final throw of the dice, not just to revive the economy and boost confidence among investors but also ahead of the national elections due in 2014.

It also follows Thursday's dramatic 14% rise in the price of diesel, which is heavily subsidised in India.

The government was forced to back down on retail reform after the cabinet first undertook to open up the retail sector last November.

The move had been strongly opposed by tens of thousands of small businesses and cornershops who fear they will be put out of business.

The opposition Bharatiya Janata Party and the Communists labelled it a "betrayal of democracy".

But this latest move has already been welcomed by economists who say it will transform the way Indians shop and will boost the economy.

Some business leaders also backed the plan.

Sunil Bharti Mittal, chief executive of conglomerate Bharti Enterprises, said: "The series of policy decisions announced by the government today signal that India is on the move.

"More importantly, they will boost sentiment within the domestic industry and provide much needed momentum to the economy."

Briefing reporters after the press conference, Trade Minister Anand Sharma said: "Views of all state governments were ascertained, some states received the proposal very well, some expressed reservations. We tried to build a consensus through an inclusive and democratic process."

Mr Sharma said the implementation of the policy had been left entirely to the states, suggesting that some opposed to reform could opt out.

Direct selling
Reports suggest that other conditions have also been imposed on groups wanting to invest in India.

For example, companies will have to invest at least $100m (£67m), open outlets only in towns with a population of more than one million and source at least 30% of produce from India, the AFP news agency reports.

Similar conditions were suggested when the government first attempted to introduce the plan last year.

Multinational retailers such as like Walmart, Carrefour and Tesco already have outlets in India, but they deal with smaller retailers. This decision allows these chains to sell directly to Indian consumers.

"Tesco welcomes this positive development but we await further detail on the conditions... we are hopeful that will allow more Indian consumers, businesses and communities to benefit from world-class retail investment," said a statement by Tesco.

Wal-Mart said greater investment following the government's move would "lower the price of products, improve the livelihoods of farmers and ease supply-side inflation.

"Through these, and several other initiatives, we hope to make a positive impact on the lives of the people of India."

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  • New Delhi: The government has gone on a reform overdrive. Fifty-one per cent foreign direct investment (FDI) in multi-brand retail, which was first approved by the government in November last year, has finally been notified. There has been vehement opposition to FDI in retail and the government says it has taken nearly 10 months of consultation before the decision has been taken.

    Foreign carriers have now been allowed to invest up to 49 per cent in India’s airline companies. It has been a decision that was awaited since long. The move had been strongly opposed, particularly by Jet Airways, in the past.

    The government is also looking to raise Rs. 12,000 crore (approximately $2.2 billion) by selling its stake in four companies – National Aluminium, MMTC, Hindustan Copper and Oil India. The plan to disinvest stake in Neyveli Lignite has been put off for now.

    “The decision of FDI in multi-brand retail does not need Parliament’s approval,” Montek Singh Ahluwalia, Deputy Chairman of Planning Commission, said.

    These decisions come a day after the price of diesel was raised by Rs. 5 per litre. The decision to raise diesel prices has been taken after intense debate within the government on the impact it could have on inflation.

    The UPA government’s top policy makers are patting themselves on the back for the slew of policy changes that have been approved by the Cabinet. The move is being positioned as the end of the policy paralysis.

    But has the government really moved ahead with policy? It would appear that the government has chosen the easy route to dismiss the charges of policy paralysis.

    The government’s move has come only for those issues which do not need the approval of Parliament. By making an announcement, and positioning it as big bang, the UPA is looking to steal the Opposition’s thunder.

    The timing of the government's move also comes just ahead of the ratings review that is expected in October. The ratings agencies have warned the government for its failure to cut down on wasteful expenditure.

    Banking, pension and insurance Bills, besides the constitutional amendment Bill for goods and service tax (GST) are still stuck. These are key economic legislations that Indian industry is looking forward to.

    Banking amendment Bill is with Parliament while the Cabinet notes on FDI in insurance and pension are yet to even reach the Cabinet. The Standing Committee on Finance is still to submit its report on the constitutional amendment bill needed before the implementation of the key tax reform.

    The report of Parthasarathi Shome panel on the retrospective tax changes, as envisaged in the Finance Bill 2012, is expected after September 15. Depending on the report, the government will have to go back to Parliament to make suitable amendments.

    While the policy push may have grabbed headlines, the government will need to have its ear to the ground. It will have to keep reviewing its goalpost as the impact of the Q3 liquidity will be felt around the globe. That could inflate commodity prices, which could derail government finances yet again. Shielding the common man from the QE3 impact could be the biggest challenge with less than two years to go for the 2014 general elections.

    Big bang policy measures, really? - NDTVProfit.com
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  • Thanks for starting the new thread on this. Manoja had already shared this in " Bubble Burst" forum that has been live for ever. In any case, this is great news for India overall. Ecomony should get a globsl boost due to this. US market was all time high y'day, so timing of this news could not have been better.
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  • Good Reform.

    FDI in Retail will be a good boost for retail and commercial real estate in India. I am hoping 2014 to be the year.:)
    MMS seems to have hit a six.
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  • Originally Posted by Munish Malhautra
    FDI in Retail will be a good boost for retail and commercial real estate in India. I am hoping 2014 to be the year.:)
    MMS seems to have hit a six.


    Indeed. I generally don't like what the UPA govt has done in most instances. But allowing FDI in retail is something which was the demand of time. All opposing this decision are definitely not helping here.

    This decision is definitely in favour of Common man and Farmers. Its loss only for those who are looting us like Middle men and Retail brokers.
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  • Originally Posted by kk83710
    Indeed. I generally don't like what the UPA govt has done in most instances. But allowing FDI in retail is something which was the demand of time. All opposing this decision are definitely not helping here.

    This decision is definitely in favour of Common man and Farmers. Its loss only for those who are looting us like Middle men and Retail brokers.


    This will be great boost to Indian economy and Common man. Initially it is restricted only for cities, But I am sure later this will be slowly move to towns.
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  • Originally Posted by Munish Malhautra
    FDI in Retail will be a good boost for retail and commercial real estate in India. I am hoping 2014 to be the year.:)
    MMS seems to have hit a six.


    I agree....but what about the noise created by UPA allies? Will they get the requisite numbers if all these guys turn turtle?

    As it is, UPA seemed to have been jolted by the comments by one and all...of policy paralysis...the announcements in the last couple of days have suddenly begun to boost the sentiment...look at stock market...(Sensex up 450 points) look at rupee (up 1.11 in a single day..to 54.3)
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  • Originally Posted by hindustan
    This will be great boost to Indian economy and Common man. Initially it is restricted only for cities, But I am sure later this will be slowly move to towns.


    As it seems, a State will have a choice whether they allow this in their state...so initially there will be a wait n watch game on the part of skeptics...later when they see the advantages and growth opening up in those states who opt for it...they may join the bandwagon then.
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  • Originally Posted by VedKapoor
    I agree....but what about the noise created by UPA allies? Will they get the requisite numbers if all these guys turn turtle?

    As it is, UPA seemed to have been jolted by the comments by one and all...of policy paralysis...the announcements in the last couple of days have suddenly begun to boost the sentiment...look at stock market...(Sensex up 450 points) look at rupee (up 1.11 in a single day..to 54.3)


    There are couple of things going on which leads to sensex up by 450
    1) Foreign investment in Aviation industry
    2) Increase in Diesel price
    3) FDI in Retail
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  • Originally Posted by hindustan
    There are couple of things going on which leads to sensex up by 450
    1) Foreign investment in Aviation industry
    2) Increase in Diesel price
    3) FDI in Retail


    Yep. Just to add one more factor is strengthening on the Global Market. Yesterday most of the influential markets in the World were stronger.
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  • Originally Posted by kk83710
    Yep. Just to add one more factor is strengthening on the Global Market. Yesterday most of the influential markets in the World were stronger.


    Yeah...something is cooking up for Europe on the positive side, perhaps, which is adding to this sentiment. All in all, last two days look much different from the last one year of inaction...suddenly, things have come alive...
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  • I think if we have transparent regulations (fair practices, competition law, procurement / supply chain restrictions), this can be very successful in terms of benefits to consumers and tax revenues for government. Personally, I am a big proponent of FDI.
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  • Originally Posted by hindustan
    I think if we have transparent regulations (fair practices, competition law, procurement / supply chain restrictions), this can be very successful in terms of benefits to consumers and tax revenues for government. Personally, I am a big proponent of FDI.


    Agreed. Consumers will get competitive price. Farmers will get better price, because the middlemen will disappear in this model....and that is where the politics lies...the mota maal wale wholesale traders will have their size cut somewhat.

    Having said that, in a huge market like India, the next galli shops and shopkeepers will continue to survive and thrive...it is a misgiving that small time traders will suffer.
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