Asia-Pacific News

Indian Government Votes to Welcome Foreign Retailers

Matt Clinch, News Assistant

Foreign retail companies could soon be free to move onto Indian soil after the lower house of parliament voted to allow foreign direct investment in a fiercely contested debate on Wednesday evening.

The crucial vote was won with 253 votes in favor and 218 votes against, after days of deadlock. At the lively encounter at Lok Sabha, both the Samajwadi Party and Bhaujan Samaj Party staged a walkout and abstained from leaving the largest party, the United Progressive Alliance, with the majority it needed.

Opposition politicians had initially voiced concerns that foreign retailers and supermarket chains would impact on Indian jobs and force smaller stores out of business.

The vote is non-binding however, the upper house of parliament and individual states would still have their own say, but any defeat for the Congress-led ruling coalition would have been considered highly detrimental to a package of reforms recently backed by Prime Minister Manmohan Singh.

Medha Samant, investment director at Fidelity told CNBC Wednesday before the vote that the government's recent push for change has been cheered by markets.

"If you look back in September after a long period of policy inaction the recent reform burst that came from the government has definitely enthused investors and we've seen that reflected in stock market performance," she said.

"The recent vote that's currently going on in parliament, it doesn't really require to go through parliamentary approval to become a law but it just reflects the fact that the current minority government needs to appease all parties and make sure this policy can be effectively executed as we go along."

During the debate, lawmakers behind the reform cited an improved supply chain and increased benefits for India's farmers such as the assured buyers that foreign supermarkets would bring.

India's economic rise in recent years has seen (gross domestic product) GDP topping the 10 percent mark in 2010, but that healthy growth has since stalled with levels falling back near the 5 percent level. The recent reading of third-quarter GDP grew 5.3 percent from a year earlier.

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Foreign direct investment was seen as a key policy reform to kick start the economy and put India back on the path to the strong growth it has seen in past years. Reports have emerged that the likes of U.K. based Tesco and French chain Carrefour as well as others have their eyes on India.

"This indefinitely benefits companies both in the retail sector and also some of the consumer companies, in terms of watches, jewelry manufacturers, shoe retailers etc," Samant said.

(Read More: How Wal-Mart Got a Foot in the Door of India's Retail Market)

Wal-Mart is also believed to be willing to move into the emerging market.However, the retail giant is currently involved in an investigation by India's financial crimes watchdog after the supermarket invested money in a consultancy firm which may have broken these foreign investment rules before any change happened.

Wal-Mart meanwhile says it has complied with India's FDI guidelines.