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"Indian Walmart" A dream will become reality soon after government approved biggest retail reforms.
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, 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.
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.
Wal-Mart hailed the decision, but said it would take a close look at the fine print to see what the decision entails for its ability to do business in India.
"We believe this is an important first step," said Scott Price, president and chief executive of Walmart Asia in a statement.
Raj Jain, who heads Wal-Mart India, told CNBC TV18 the decision will "redefine the way consumers shop in India, but more importantly, the way supply chains in India run."
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.
"This is a very bold move and the economic reforms process is back on track." Rajan Mittal, vice chairman of India's Bharti Enterprises, which is Wal-Mart's partner in that market, told reporters.
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 foreign direct investment of up to 51 percent 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, he added.
The new rules may commit supermarkets to strict local sourcing requirements and minimum investment levels aimed at protecting jobs, according to local media.
A heavyweight member of Singh's coalition government warned on Thursday it unequivocally opposed opening the sector.
The move is politically risky.
Fears of potential job losses could heighten popular anger at the Congress party ahead of key state polls next year that will set the stage for the 2014 general election.
But slowing growth and investment in India, with the rupee currency around historical lows and government finances worsening, may have spurred the government into action.
"Manmohan Singh, after all the scams and the impression of government paralysis, has realized it's time to take some bold steps. This is a very bold step that will please the middle class," said political analyst Amulya Ganguli.
Political Opposition
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, had long lobbied to free up further.
"For international retailers, it will open up a $1.6 trillion market growing at 8-9 percent so it's a big business opportunity for all of them," said Thomas Varghese, CEO of Aditya Birla Retail, an Indian supermarket chain.
For Wal-Mart, it's a very big opportunity to reach further abroad, said Moody's senior retail analyst Charles O'Shea.
"There are 1.2 billion people and if you're Wal-Mart, it's a place you need to be," O'Shea said.
Indian retailers have operated supermarket chains in India for years, but their expansion has been hampered by a lack of funding and expertise as well as poor infrastructure, which makes the cold storage of food transported around the country practically impossible.
Political opponents of the proposal, with an eye to the ballot box, argue an influx of foreign players — which could include France's Carrefour and Britain'sTesco will throw millions of small traders out of work in a sector that is the largest source of employment in India after agriculture.
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.
The main opposition Bharatiya Janata Party (BJP) opposes opening up the retail sector, arguing that letting in "foreign players with deep pockets" would bring job losses in both the manufacturing and service sectors.
"Fragmented markets give larger options to the consumers. Consolidated markets make the consumer captive," the BJP's leaders of the upper and lower houses of parliament said in a statement before the decision. "International retail does not create additional markets, it merely displaces (the) existing market."
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Rating agencies Standard & Poor's and Moody's said on Monday there will no immediate downgrade of their credit ratings on the United States due to the failure of a congressional "super committee" to reach an agreement on debt reduction.
But Fitch, the third leading ratings agency, which currently has the most positive rating of the three on U.S. debt , said it could cut the outlook on its "triple-A" rating, with a downgrade an outside possibility.
U.S. lawmakers on Monday announced they had abandoned their effort to rein in the country's debt, in a sign that Washington likely will not be able to resolve a dispute over taxes and spending until 2013 — after next year's presidential and congressional elections.
Fitch said in a statement that, when it had affirmed the United States "AAA" ratings with a "stable" outlook in August, it had "also commented that failure by the super committee to reach agreement would likely result in a negative rating action".
It added such action was "most likely a revision of the rating outlook to negative, which would indicate a greater than 50 percent chance of a downgrade over a two-year horizon. Less likely would be a one-notch downgrade".
S&P, which in early August had downgraded its top-tier rating on the United States on concerns over the government's budget deficit and rising debt burden, said its rating was not affected by the failure.
S&P's downgrade helped spark a global financial market rout, which has been exacerbated by Europe's worsening sovereign debt crisis.
Moody's said the committee's failure would not by itself lead to a rating change, saying the outcome was "informative for the rating analysis but not decisive".
S&P, in a statement, said: "The fiscal committee's inability to agree on fiscal measures that would stabilize U.S. government debt as a share of GDP is consistent with our Aug. 5 decision to lower our rating to 'AA-plus'."
The committee was given the task to cut U.S. deficits by at least $1.2 trillion over 10 years. Automatic spending cuts are due to begin in 2013 now that the committee has failed.
U.S. President Barack Obama, seeking to calm jittery financial markets, said the United States was not facing an imminent threat of default — as it did last August — and that "one way or another" there would be at least $2.2 trillion in deficit cuts over 10 years.
In addition to the $1.2 trillion in automatic cuts that are to be triggered with the super committee's failure, there were $1 trillion in cuts agreed to August that are locked in.
S&P's current AA-plus rating on the United States long-term debt is the second-highest rating. The agency's outlook on that rating is negative.
Moody's rates the long-term U.S. debt as triple-A, also with a negative outlook.
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