Rule Change Would Allow Some Foreign-Owned Stores to Open in India

The government said it would lift the current 51 percent ownership limit on foreign companies that sell just one brand of products — a group that would also include companies like Apple and Starbucks — if they met certain strict conditions. Many foreign chains, most notably Ikea, which buys a lot of furniture and furnishings from India, have not opened stores in the country because they did not want to take on Indian partners.

The decision is one of a series of steps Indian officials took in recent weeks to bolster flagging investor confidence and increase the flow of foreign money to support its slowing economy and the falling rupee. This month, for instance, policy makers allowed individual investors who live in other countries to trade directly in the Indian stock market, rather than go through intermediaries like offshore funds.

One of those market-opening proposals, though, was recently tabled after meeting political opposition.

The government, led by the Congress Party, last month reversed a decision to allow 51 percent foreign investment in multibrand retailing — a category that includes companies like Walmart, Tesco and Carrefour. Many Indian political leaders, including some members of the Congress Party and its allies, opposed letting foreign retailers own controlling stakes of stores, saying they would decimate small shopkeepers and wholesale traders that employ about 34 million people. Much of that criticism was aimed at so-called big-box retailers like Walmart, which has a wholesale business in India.

But the decision Tuesday to further open up single-brand retailing to foreign competition — a move officials had signaled in early December — suggests that Prime Minister Manmohan Singh and his aides believe there will not be significant political resistance to the niche foreign retailers, which will largely cater to the middle and upper classes of Indian society.

Still, the approval comes with some strict conditions that may be difficult for some companies to meet. Among them is a requirement that single-brand retailers buy 30 percent of the value of their products from small Indian businesses and artisans — defined as businesses and individuals that have invested less than $1 million in factories or equipment. Previously, some analysts said that such a purchasing condition would violate World Trade Organization rules.

The new rules also say that investors wishing to hold 100 percent of single-brand stores must own the brands that their stores sell, a provision that would preclude franchisers.

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