Manmohan Singh Bites a Bullet: FDI in Multi-Brand Retail Allowed

The Manmohan Singh government has finally bitten the bullet. After a cabinet meeting on Thursday, the government announced on Friday, September 14, that it would allow 51% foreign direct investment in multi-brand retail — opening India's supermarket sector to foreign chains for the first time — alongside 49% FDI in aviation, 100% in single-brand retail, 74% in broadcasting, and 49% in power trading exchanges.

Commerce Minister Anand Sharma, communicating the decision, said it followed a year-long consultation. The conditions were specific: a minimum investment of $100 million, half of it in back-end infrastructure like cold storage and supply chains, 30% sourcing from small and medium enterprises, and stores restricted to cities with populations over one million — 53 cities out of India's 8,000 towns and cities. Crucially, the final say on whether foreign retailers could operate was left to each state.

The timing was no accident. A day earlier, the government had raised diesel prices by Rs 5 a litre and capped subsidized LPG cylinders — the "big-bang" reform weekend that the prime minister, the economist who opened up India's economy in the 1990s, had been accused of avoiding for years.

The reaction was immediate and furious. The BJP and the Left forced adjournments in both houses of Parliament; traders' associations warned that kirana stores would be wiped out. And the government's own ally revolted: on September 18, Mamata Banerjee announced that the Trinamool Congress would quit the UPA over the retail decision and the diesel hike, with her six ministers resigning days later — leaving the coalition in a minority.

A previous attempt at the same reform had been shelved in December 2011 under similar pressure. This time the government chose to press ahead and pay the political price. Whether the gamble would pay off — in investment, in jobs, or at the ballot box — was the question that would define the rest of the UPA's term.