NEW DELHI - India agreed Friday to open its huge market to foreign retailers such as Wal-Mart in a surprising decision that was part of a flurry of economic reforms aimed at sparking new growth in the country's sputtering economy.
The Cabinet's decision - after a similar proposal was withdrawn under withering criticism last year - immediately generated optimism that a government plagued by scandal was finally breaking out of the political paralysis that had stifled reforms for months.
"This is a landmark decision in India's economic reforms process," said Rajan Bharti Mittal, whose retail company, Bharti Enterprises, has a joint venture with Wal-Mart.
In this 2009 file photo, people gather for the inauguration ceremony of the first Wal-Mart/Bharti Enterprises joint venture store in Amritsar, India. India agreed Friday, to open its huge market to foreign retailers such as Wal-Mart as part of a flurry of economic reforms aimed at sparking new growth in the sputtering economy.
Prime Minister Manmohan Singh said the reforms were made to spur economic growth and to attract foreign investment.
"I believe that these steps will help strengthen our growth process and generate employment in these difficult times," he wrote on his Twitter account, appealing for public support.
However, political opponents and even some allies, decried the decision to allow in international supermarket chains, saying it would hurt small retailers and farmers.
"(It) will lead to job losses for millions of our people," D. Raja, a Communist Party lawmaker, told the NDTV news channel.
The Cabinet also agreed to allow foreign investment in airlines and to sell stakes in state-owned companies. On Thursday, the government decided to reduce fuel subsidies and allow the price of diesel to rise, a move hailed by the business community but criticized by political allies and opponents.
The decision on retail investment Friday would allow foreign firms to own a majority stake in multi-brand retailers here for the first time. However, individual states would have the right to decide whether to let the retailers operate from their territory.
States led by the ruling Congress party would be most likely to allow them, meaning the big cities of New Delhi and Mumbai would have new shopping options.
U.S.-based Wal-Mart, British-based Tesco PLC, French-based retailer Carrefour and others have been interested in entering India, a country of 1.2 billion people where retail is the second-biggest industry behind agriculture.
Commerce Minister Anand Sharma said India badly needed the infrastructure investment that would come from these firms. Currently, about 35 to 40 percent of produce rots before it gets to the stores, he said.
Under the Cabinet decision, at least 50 percent of the foreign investment would have to be in back-end infrastructure, such as processing, distribution and storage.
"It will generate large numbers of jobs in rural India for our men and women," Sharma said.