India will open the country's retail industry to foreign supermarkets, a much delayed reform expected to help unclog supply bottlenecks and ease inflation over time.

The government has allowed 51 percent foreign direct investment in the multi-brand retail sector. It also decided to raise the cap on foreign investment in single-brand retailing to 100 percent from 51 percent.

The decision will be cheered by global retail giants such as Wal-Mart that have long been eyeing India's lucrative retail sector worth an estimated $450 billion a year.

India until now allowed 51 percent foreign investment in single-brand retail and 100 percent in wholesale operations.

COMMENTARY:

THOMAS VARGHESE, CEO, ADITYA BIRLA RETAIL, MUMBAI:

For all domestic retailers in the country, this will make available capital apart from domain knowledge. 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 as growth has slowed down for all of them.

From the farmers' point of view this will help to improve realizations and expand yields through contract farming. We as a company haven't been in active discussions with any foreign investor. We will take things as they come.

ANAND MAHINDRA, VICE CHAIRMAN, MAHINDRA GROUP:

The real fight on food price inflation begins today, FDI in multi brand retails is cleared.

RAJAN MITTAL, VICE CHAIRMAN AND MANAGING DIRECTOR BHARTI

ENTERPRISES:

This is a very bold move and the economic reforms process is back on track.

JAY SHANKAR, CHIEF ECONOMIST, RELIGARE CAPITAL MARKETS,

MUMBAI:

I am not a firm believer in the job loss argument about FDI in retail. I am sure the government would have put in riders safeguarding the interests of local retailers.

I think foreign chains can also bring in humongous logistical benefits and capital. There would be stupendous benefits from this move in terms of upgrading infrastructure, cold storage and it would eliminate layers of middlemen.

It will give good prices to farmers and make it affordable for consumers, ease out supply chain bottlenecks and reduce inflation.

N.BHANUMURTHY, ECONOMIST, NATIONAL INSTITUTE OF PUBLIC

FINANCE AND POLICY:

There could be some short-term job losses but it's not a big issue because in the long run, the decision is expected to result in net economic gain.

The move to open up foreign investment in the sector will help to ease out supply side constraints. It will have a substantial positive impact on inflation. It will help farmers by smoothening out the volatility in the prices of farm producers.

B MUTHURAMAN, PRESIDENT, CONFEDERATION OF INDIAN INDUSTRY:

CII strongly supports the introduction of FDI in multi-brand retail recognizing that it would benefit the consumers, producers (farmers) and small and medium enterprises (SMEs) and generate significant employment.

This would open up enormous opportunities in India for expansion of organized retail and allow substantial investment in backend infrastructure like cold chains, warehousing, logistics and expansion of contract farming.

India with a 8-9 percent growth in GDP is a consumer driven economy and modern retail has to step up to be able to meet up consumer aspiration not only in metro cities and towns but across the Indian sub-continent.

CHANDRAJIT BANERJEE, DIRECTOR GENERAL, CONFEDERATION OF

INDIAN INDUSTRY:

The biggest beneficiary of this announcement of FDI in retail would be the small farmers who will be able to improve their productivity and realization by selling directly to large organized players and therefore dis-intermediate the current value chain.

The farmers will not only be able to increase their output but will also get better rewards in terms of realization by supplying directly to organized players and assured market for their products by tying up long-term contracts with them.

This move is expected to substantially benefit consumers also by making available farm produce at much lower prices. This would also lead to growth, evolution and innovation in the un-organized retail sector.

PINAKIRANJAN MISHRA, NATIONAL LEADER, RETAIL, ERNST&YOUNG,

MUMBAI:

This move will make way for inflow of knowledge from international experts which can give boost to the overall growth of the industry. Capability building apart from financial investments is extremely important for the industry.

We will also see investment in infrastructure from the retail players...and (this) will ensure that the farming community will have a new support group with a common interest which is expected to give a great push to productivity.

BACKGROUND

-- The retail sector in the nation of 1.2 billion people is estimated to have annual sales of $450 billion, with nearly 90 percent of the market controlled by tiny family-run shops.

-- Organized retail, or large chains, makes up less than 10 percent of the market but is expanding percent a year. This is driven by the emergence of shopping centers and malls, and a middle class of close to 300 million people that is growing at nearly 2 percent a year.

-- India currently only allows FDI in cash-and-carry, or wholesale, ventures. There are restrictions on foreign investment in retail because of opposition from millions of small shopkeepers who are valuable vote banks during elections.

(Reporting by Nandita Bose in MUMBAI, Abhijit Neogy and Matthias Williams in NEW DELHI; Editing by Aradhana Aravindan)

India