India’s cabinet approves FDI in multi-brand retail

India's cabinet approved a bill to relax rules on foreign direct investment in retail late Thursday.

If approved by a vote in parliament, the measure will allow foreign retailers to own a 51% majority in multi-brand stores, paving the way for companies like Walmart, Carrefour and Tesco to open supermarkets in India, the Economic Times reported.

The cabinet also approved a measure to allow 100% foreign ownership of single-brand retail outlets such as Nike or Reebok stores, the paper said.

Foreign governments and industry bodies have been lobbying for these moves for several years, and proponents suggest that the influx of foreign cash and expertise will help India develop vital infrastructure for “farm to fork” agriculture and stimulate employment. However, the biggest impact could be symbolic.

Since Prime Minister Manmohan Singh's second term began, his failure to push through any significant economic reform has soured many industrialists and investors on the India story, as The Economist writes in an article on the rupee's plunge to an all-time low earlier this week. That's not only hammered the currency. It's left India with a massive budget deficit and runaway inflation amidst lagging growth and flagging investment.

Various press reports have suggested that Singh is about to draw a line in the sand, but that could be risky, the Economic Times said.

The government's decision is fraught with great political risk during what is perhaps the weakest phase in its nearly eight years of governing India. The proposal was opposed by two constituents of the ruling coalition – Trinamool Congress and the DMK, a senior cabinet minister said.  "There was some opposition and concern about announcing it in Parliament but Pranab babu (FM Pranab Mukherjee) prevailed," another cabinet minister told ET.

Earlier this week, Singh warned that India could suffer the same disastrous fate as Europe if opposing parties continued to paralyze the parliament, according to Tehelka. But so far the winter session has proven to be tense, with several walkouts and early adjournments in its first few days. Meanwhile, several controversial pieces of legislation are on the docket, including an anti-corruption law, pension reform, and new mining regulations, among other things.