India opens supermarket sector to foreigners

India threw open its $450 billion retail market to global supermarket giants on Thursday, approving its biggest reform in years that may boost sorely needed investment in Asia's third-largest economy.

The world's largest retail group, Wal-Mart Stores Inc. of Bentonville, Ark., and its rivals see India's retail sector as one of the last frontier markets, where a burgeoning middle-class still shops at local, family-owned merchants.

However, opponents to the plan say allowing big-box operations in will throw millions of small merchants out of work in a sector that is the largest source of employment in India after agriculture.

Allowing foreign retailers to take stakes of up to 51 percent in supermarkets would attract much-needed capital from abroad and ultimately help unclog supply bottlenecks that have kept inflation stubbornly close to a double-digit clip.

Millions of small retail traders vigorously oppose competing with foreign giants, potentially providing a lightning rod for criticism of the ruling Congress party ahead of crucial state elections next year.

Food Minister K.V. Thomas said the government will allow 51 percent foreign direct investment in multi-brand retail -- as supermarkets are known in India. It will also raise the cap on foreign investment in single-brand retailing to 100 percent from 51 percent, the minister added.

The new rules may commit supermarkets to strict local sourcing requirements and minimum investment levels aimed at protecting jobs, according to local media.

Under fire for a slow pace of reform, Prime Minister Manmohan Singh's embattled government appears to be slowly shaking off a string of corruption scandals to focus on policy changes long desired by investors.

A heavyweight member of Singh's coalition government warned on Thursday it totally opposed opening the sector.

Political opponents of the proposal argue an influx of foreign players will throw millions of small traders out of work in a sector that is the largest source of employment in India after agriculture.

India previously allowed 51 percent foreign investment in single-brand retailers and 100 percent for wholesale operations, a policy Wal-Mart and rival Carrefour, among others, have long lobbied to free up further.

India's biggest listed company, Reliance Industries, was forced to backtrack on plans in 2007 to open Western-style supermarkets in Uttar Pradesh after huge protests from small traders and political parties.