India lets Starbucks, Ikea open stores

India abandoned a rule against foreign single-brand retailers operating stores without a local partner, paving the way for global companies including Starbucks Corp and Ikea.

The government ratified a November 24 cabinet decision to raise the ownership limit to 100 per cent from 51 per cent, Trade Minister Anand Sharma said in a statement yesterday. The new rules take effect immediately and require companies to procure at least 30 per cent of the products they sell from smaller Indian companies, he said.

Prime Minister Manmohan Singh has pledged to open India to overseas companies after reversing a decision to let multi-brand retailers such as Wal-Mart Stores Inc and Carrefour SA open supermarkets in India’s $400 billion retail market. Singh’s administration has struggled to advance its initiatives amid opposition from its own allies and a corruption scandal that paralysed parliament.

“This is a welcome move with a clear potential to lift the general mood in the economy,” Rajan Bharti Mittal, managing director at Bharti Enterprises, Wal-Mart’s Indian partner, said in an e-mailed statement. “We hope the initiative is a precursor to further liberalization in the sector in the days to come.”

Starbucks would compete in India with operators including Lavazza SpA’s Barista Coffee Co and closely held Cafe Coffee Day. The Seattle-based coffee chain said in November it intended to open its first store in India this year.

Nivedeeta Moirangthem, Ikea’s India spokeswoman, didn’t reply to an e-mail seeking comment. Calls and e-mails to Starbucks’s public-relations team in Seattle weren’t immediately answered. Starbucks signed an agreement with India’s Tata Coffee Ltd in January 2011 to source beans and consider opening stores.

Singh’s allies and other parties opposed a decision allowing retailers selling more than one brand, unveiled in late November, saying it would hurt local mom-and-pop type stores. The government suspended the policy December 7.

The prime minister, 79, said in a December 14 interview that “India remains committed to a system of regulation that is supportive of enterprise and we will do everything to encourage foreign investment.”

He said he would renew the multi-brand retail initiative after regional elections this year.

Singh, whose championing of free-market policies two decades ago helped India become the second-fastest growing major economy, faces allegations that the government lost $31bn by unfairly awarding mobile-phone service permits in 2008 to ineligible companies and over contracts for hosting the 2010 Commonwealth Games.

The benchmark BSE Sensitive Index dropped 25 per cent last year, while the rupee slumped 16 per cent versus the dollar.