One of the big-ticket reforms held off for long is set to materialise with the Prime Minister?s Office (PMO) giving an in-principle nod for allowing FDI in multi-brand retail, highly placed sources with knowledge of the matter said. The move would be a game changer in Indian retailing space, with international players like Wal-Mart, Careffour and Tesco, among others eager to seize the initiative as and when the sector is thrown open to FDI.

Sources said consultation paper put out by the department of industrial policy and promotion (DIPP)?the nodal FDI policymaker?that suggested opening up of retail in phases has already got support from key wings of the government like the finance ministry and department of consumer affairs. Once DIPP gets the nod of UPA chairperson Sonia Gandhi?which is expected soon given the PMO gesture?it will move a Cabinet note in this regard, officials involved in the policy-making process said.

The PMO move assumes significance in the context of the recent assertion of Prime Minister Manmohan Singh to a group of editors that economic reforms were on course.

India?s retail sector is largely closed to FDI, with 51% foreign direct investment allowed only in single-brand retail and multi-brand retail restricted to cash-and-carry outlets. The reform is seen as a way to ease massive supply bottlenecks that have helped keep inflation stubbornly high.

Proposals to open up multi-brand retail remained stalled during Prime Minister Manmohan Singh?s first term amid protests from his former Left allies and fears over the future of small family-run outlets. But UPA-II has shown a resolve to push bold reforms like freeing up of fuel prices. FDI in retail is the next big reforms agenda of the government.

In 2007, the then commerce and industry minister Kamal Nath had announced allowing up to 51% FDI in select segments under retail, but with protests from tarde lobbies, Left parties and BJP and also Sonia Gandhi?s intervention, the proposal got stalled. UPA chairperson?s letter to the PMO advising caution against opening up the retail segment to foreign players had stalled all activities in this direction. The UPA chairperson had raised concerns on the feasibility of allowing retail in areas where the small scale entrepreneurs and workers may get affected.

But, with latest movements in this direction, it is understood that FDI in retail may soon see light of the day. The consumer affairs ministry has said in a note to DIPP that FDI up to 49% in multi-brand retail is welcome but it should compulsorily be through infusion of fresh capital, 75% of which is spent on back-end infrastructure/supply chain, logistics and technology upgrade.

In its response to the DIPP consultation paper on the subject, the ministry also said small retailers such as kirana stores be encouraged to become franchisees of FDI-funded retails. The small retailers should also be provided access to the logistics and supply chain set up by FDI-funded retailers, it stressed.

Batting for opening multi-brand retail to foreign investment, the ministry, headed by NCP supremo Sharad Pawar said the sector should be allowed to have FDI up to 49% with the above riders. The idea is to have a balanced policy that protects the interests of mom-and-pop stores.

Currently, while FDI is prohibited in the multi-brand segment, it is allowed 100% in the back-end cash & carry segment and 51% in single-brand retail. US-based retailers like Wal-Mart and Germany?s Metro AG operate in the country through their cash-and-carry outlets which are open only for registered wholesale buyers.

In June, the DIPP had circulated a discussion paper on the issue to build consensus among all stakeholders.

The government has been trying to open the retail sector to FDI in bits, but has not met with much success so far. In 2007, it tried to allow 51% FDI in specialty retail like consumer electronics, sports goods, building equipment and stationery products but could not go ahead due to political opposition.

Earlier, a study conducted by economic think-tank ICRIER on the impact of organised retail on kirana stores concluded that big, organised retail, Indian or foreign, did not pose any direct threat to kirana shops, but the government should make finance easier for the latter to compete with the former.