India formally lifted restrictions on foreign investment in the country's single-brand retail sector on Tuesday, allowing for full overseas ownership.
The move potentially opens the door to the likes of Swedish furniture giant IKEA to open stores in Asia's third-largest economy. The company had previously said it would only enter the country when investment restrictions were eased.
Foreign retailers wishing to invest beyond the previous cap of 51 per cent will need to source 30 per cent of their goods from small and village industries, the government said.
"This step will provide stimulus to domestic manufacturing value-addition and help in technical upgradation of our local small industry," Trade Minister Anand Sharma said in a statement.
Sharma's statement was soon followed by joy across India Inc.
Industry bosses welcomed the decision saying the move would have a positive impact on the employment situation in the country.
"It is a good move. This will help the micro and small enterprises," Ficci President Harsh Mariwala said.
Rajan Bharti Mittal, Vice Chairman and MD, Bharti Enterprise said the increased investments by foreign single brand retailers will not only help improve consumer choice but also enhance competitiveness of Indian enterprises through access to global designs, technologies and management practices.
"Mandatory sourcing of at least 30 per cent of the value of products sold from small and cottage industry sector will have a positive impact on the employment situation in the country. We hope the initiative is a precursor to further liberalisation in the sector in the days to come," Mittal added.
Sharing similar sentiments, Assocham said: "We hope political consensus will soon be evolved to allow 100 per cent FDI in multi brand retailing as well."
The Government was forced to put on hold the Cabinet decision on allowing FDI in multi-brand retail by several political parties, including UPA ally Trinamool Congress.