India may open up retail sector next year

India may open up retail sector next year

New Delhi: Food processing minister Subodh Kant Sahai said on Tuesday he was hopeful Asia’s third-largest economy would open up foreign direct investment in multi-brand retail sector, worth at least $50 billion, in 2011.

Moves to open up the sector are being closely watched by global retail giants such as Wal-Mart Stores, whose CEO is on a visit to the National Capital, eager to get a slice of a retail market with a potential customer base of 1.2 billion.

“It is very much on agenda," Sahai told reporters, referring to opening up the retails sector. “Let’s see, by next year," he said, when asked about a timeframe.

India’s retail sector is largely closed to foreign firms and favours small mom-and-pop stores, with 51% foreign direct investment allowed only in single-brand retail. Multi-brand retail is restricted to cash-and-carry or wholesale outlets.

Opening up the retail sector would ease massive supply bottlenecks that have helped keep inflation stubbornly high.

Political minefield

With mom-and-pop stores accounting for over 90% of domestic trade, the issue is a political minefield for the ruling Congress party fearful of losing its populist appeal through potential job losses and protests from farmers.

Prime Minister Manmohan Singh’s government has begun to speak more positively on relaxing the rules, hoping the benefits of the move -- creating thousands of jobs and reining in inflation by curbing waste -- would douse political opposition.

But Congress party chief Sonia Gandhi has been reluctant to embrace the changes, part of a general slow pace of reforms that has frustrated many investors.

Many within Congress fear opening retail would give the opposition a strong handle to attack the party as it faces a slew of key state elections and eventually national polls in 2014.

The commerce ministry in July released a discussion paper to stoke the debate, but it steered clear of suggesting changes to the existing investment cap.

Wal-Mart CEO Mike Duke said on Monday he had a “very positive" feeling on the government opening the sector.