India's government has opened the country's retail sector to foreign supermarkets, a sign that long-awaited major reforms regarded as vital to relaunch the country's flagging economy may now be pushed through.
Several major international brands such as Tesco, Carrefour and Walmart have been hoping to set up shop in the emerging economic power to exploit a £300bn retail market. Tesco invested £60m in a cashand-carry joint venture with Indian conglomerate Tata in 2008 in order to gain a foothold in the country in anticipation of the law change.
Other long-awaited moves included measures to allow foreign airlines to take stakes of up to 49% in India's troubled domestic domestic airlines and a sell-off of state-owned companies. A proposal has also been cleared which will allow overseas investors to buy up to 74% of broadcast carriage services, such as cable and internet TV.
The government of prime minister Manmohan Singh, the 79-year-old economist credited with reforming India's economy in the early 1990s, has been under fierce attack in recent months following a series of corruption scandals and a failure to halt sliding growth, tackle a growing fiscal deficit or support a weakened Indian rupee. The local television station NDTV called the move "a huge signal that [the government] is shrugging off its policy paralysis".
The Hindustan Times newspaper spoke of "big, bold reforms". Government spokesmen were unavailable for comment.
The new measure to allow overseas retailers into India is controversial. Critics claim it will destroy the livelihoods of millions of shopkeepers - including 15m "kirana" - owner-managed general shops and stalls. Currently most urban Indians get their groceries from corner stores, markets or barrows.
Supporters say the move - which will allow foreign firms to own 51 % of ventures within India and sell directly to shoppers for the first time - will bring down soaring prices and help modernise India's ramshackle distribution systems. Local stores will survive as they offer services which big retailers cannot match, they argue.
A bid to open up the multi-brand retail sector (shops which sell many different brands ) to major international chains - single brand retail is already allowed - failed last year after opposition from regional parties which support the ruling Congress party and public protests.
However senior government figures appear to have calculated that it is now worth risking the support of such groups given the potential boost to growth and international sentiment.
A provision for individual states within India to decide for themselves whether to apply the new measure together with a demand that around a third of produce is locally sourced is likely to defuse much of the opposition.
Swapan Dasgupta, a political commentator, said that the retail reforms would be "very problematic" nonetheless. "If we were still in the good times, when people felt positive, then that would be easier. Now, with the overall mood depressed and retail suffering already, there will be greater resistance," he said.
In recent months, a series of poor economic indicators for India have rattled markets and threatened a downgrade by ratings agencies. The government waited until the end of the parliamentary term to act. Opposition parties had blocked almost all business in the national assembly in recent weeks in protest.
New supermarkets could be set up relatively quickly, industry analysts say, because many international chains already have cash-and-carry operations in India selling to shopkeepers. Dasgupta said that the government had been goaded to act by overseas criticism and was hoping that "a big inflow of investment would offset the fiscal deficit." The Congress party is split between those pushing for a new wave of reforms designed to accelerate private sector growth and those who favour massive investment in major public redistribution programmes to the poor.