* Cabinet opens up supermarkets to global giants
* Seen helping investment; tie-ups for local players
* Conditions may mean no early rush of investment
* Shares of local retailers gain on tie-up hopes
(Adds quotes from retailers, government and analysts)
By Matthias Williams and Abhijit Neogy
NEW DELHI, Nov 25 Global supermarket
chains welcomed a long-awaited invitation from India to invest
in the country's $450 billion retail market, but they fear the
policy's small print may keep a lid on investment in the short
The government late on Thursday approved 51 percent foreign
direct investment in supermarkets, paving the way for firms such
as Wal-Mart Stores Inc, Tesco and Carrefour
to enter one of the world's largest untapped markets.
Shares in Indian retailers jumped -- bucking the weaker
stock market trend -- in anticipation of interest from
those big foreign retailers.
The move may breathe new life into the government of Prime
Minister Manmohan Singh, who ushered in free market reforms 20
years ago, but has been bogged down by corruption scandals and
was starting to be seen as a lame duck.
As well as appealing to India's burgeoning urban middle
class the reform will draw in much-needed new investment to a
sputtering economy. Policymakers say spending on cold-storage
and warehousing will ease supply side pressures that have driven
inflation close to a double-digit clip.
"It's important not only for raising overall growth, but
also for containing inflation and improving the quality of life
for over 50 percent of the population," said central bank
Governor Duvvuri Subbarao.
But the move also carries risk for Singh, whose party must
contest five state elections next year. It is opposed by
millions of small shop owners who fear for their livelihoods,
and prompted an uproar in India's parliament, which was forced
to close until Monday.
An India-wide group representing small traders said it was
planning protests for next week.
"They should have worked on some kind of protectionist
mechanism for smaller traders," said Praveen Khandelwa, the head
of the confederation of all India traders.
To appease its opponents, the government insisted foreign
retailers source almost a third of their produce from small
industries, invest a minimum of $100 million in India and spend
half of that on "back end" infrastructure.
"I believe because of this move costs to consumers
will come down while producers will get a better price," Trade
Minister Anand Sharma said after announcing the provisos.
An official at one major international retailer said the
company was concerned about the numbers the government had
"Some of the conditions look quite stringent. The investment
in particular - it's all quite big money. We'd need to know the
details, and how that would be accounted for," the official said
on condition of anonymity.
Foreign stores will only be permitted in cities of
more than 1 million people, and individual states will decide
whether to allow the global giants on to their patch, Industry
Secretary P.K. Chaudhery told Reuters.
That could, for example, exclude investor-favourite states
like Gujarat, which is run by the opposition Hindu nationalist
Bharatiya Janata Party that opposes new foreign supermarkets.
Sharma said new investment will create 10 million jobs in
the next three years and will not affect small shops, a claim
scorned by parties on both the left and right who predict that
millions of jobs will be lost.
"We are sitting on a time bomb in terms of employment." said
economist Jayati Ghosh. She said India should upgrade public and
cooperative supply infrastructure, not rely on corporates.
The head of Walmart's local cash-and-carry joint
venture praised the move, but also struck a note of caution.
"We will need to study the conditions and the finer details
of the new policy and the impact that it will have on our
ability to do business in India," said Raj Jain, CEO of Bharti
Domestic retail chains have operated in India for years, but
have struggled to expand due to funding difficulties, a lack of
expertise and poor roads and cold storage facilities.
If political opposition mounts, foreign firms could find the
India's biggest listed company, Reliance Industries
, was forced to backtrack on plans in 2007 to open
Western-style supermarkets in the state of Uttar Pradesh after
huge protests from small traders and political parties.
Bijou Kurien, a senior executive at Reliance Retail, said
the mood had changed now, and predicted new arrivals would have
a smoother ride.
"The regulatory and non-regulatory pressures in India are
the way of life," he said. "So any person running a business in
India has to be able to figure out how to steer their way
through all the obstacles that can be in their path."
He said the back-end and sourcing rules may stop big-box
electronics stores from coming into India for now, but said the
rules would likely soften in the medium term.
The conditions could also deter smaller international retail
chains, said Himanshu Pal, global data manager at consultants
Kantar Retail. However he said India should appeal to budget
"The Indian shopper is at the moment starved of a
discounted, value product offer. A Lidl or an Aldi could be very
successful in India."
Thomas Varghese, CEO of another Indian retailer, Aditya
Birla, said the power given to states could be a short-term
hurdle, but he predicted most would say yes to supermarkets.
"It most definitely will have an impact and reduce the
number of places where foreign retailers can set up shop, but it
will still not reduce the interest because 51 cities have a
million plus population," he said.
In the past, big-ticket reforms have been held back by the
devil in the detail.
In 2008, the government passed the U.S. civilian nuclear
deal aimed at opening up India's nuclear power market to foreign
players, hailed as the cornerstone of India's warming ties with
the United States.
But investments have since languished due to stringent
accident liability clauses that U.S. companies say make it too
risky to invest.
(Additional reporting by Henry Foy and Nandita Bose in Mumbai
and Mark Potter in London; Writing by Frank Jack Daniel; Editing
by John Chalmers and Ian Geoghegan)