"In course of time their fears will be allayed and it is only a matter of time before the policy is tweaked to allow FDI in retail," he said during an interaction with students of Wharton School of the University of Pennsylvania in Philadelphia.
While political opposition to allowing FDI is well known, there has been a growing opposition from tens of thousands of small retailers who employ millions of people to even entry of domestic corporates into the sector.
"Experience tells us (organised) retail does not drive them (small retailers) out. They will reorganise themselves and thrive. But there is genuine fear that has to be allayed," Chidambaram told students at a packed Dhirubhai Ambani auditorium at the school after delivering the Wharton Leadership Lecture.
Earlier this week, Commerce and Industry Minister Kamal Nath had said that the issue was not about allowing FDI in retail but that of large versus small players. His ministry has asked economic think-tank ICRIER to study the situation and the report is expected in a month.
Nath's comments had an unsettling effect on big companies, which have presence in retail, as only last month some of the corporate-run food stores received orders to shut shop in Uttar Pradesh. The state government, which cited law and order problems for the decision, has appointed its own commission to study the problem, but the report is yet to be tabled.
Food products and groceries make up about 55 per cent of the entire retail market, which has been growing at a CAGR of 10 per cent over the last five years, according to India Brand Equity Foundation.
The Finance Minister said: "We will patiently educate them (mom and pop store owners) before they accept retail chains."
India allows 100 per cent FDI in cash-and-carry and wholesale operations, besides 51 per cent FDI in single-brand retail. Some multinational players like Wal-Mart, who had for long waited for the sector to be opened up, have since joined hands with domestic companies as their cash-and-carry partners.
"This (opening retail to FDI) will take a little time," Chidambaram said.
India has been ranked World No 1 in the AT Kearney Global Retail Index 2006 and according to industry estimates, the organised and unorganised retail market will grow to USD 427 billion by 2010 and USD 637 billion by 2015.