Indian retailers gained in Mumbai trading ahead of today's meeting as overseas companies will need local partners to set up operations in the South Asian nation. Pantaloon Retail India Ltd., the country's largest chain by market value, jumped 13 percent to 201.20 rupees, the most in more than two years. Shoppers Stop Ltd. advanced 5.5 percent and Trent Ltd., which has a franchise agreement with Tesco, rose 1.1 percent.

"It can be a game changer for us," Kishore Biyani, the founder and managing director of Pantaloon, said in a Nov. 18 phone interview when asked about the possibility of the rules being relaxed. "We'll get opportunities to align with various businesses with stronger partners."

India also allowed companies that sell a single brand to own 100 percent of their operations from 51 percent earlier, Food Minister K.V. Thomas told reporters after the cabinet meeting.

India permitted foreign retailers to own wholesale stores in 1997. Wal-Mart has set up 14 such stores in India through a joint venture with billionaire Sunil Bharti Mittal's Bharti Enterprises to gain a foothold in the country, while Metro AG operates six wholesale stores. Carrefour opened its first outlet in December.

Eoin Treacy's view International retailers such as Wal Mart, Tesco, Carrefour, and Metro Ag will welcome news that India is allowing greater participation in its domestic market. For India, the potential gains such as improved supply chain management, refrigerated transport and warehousing, and above all lower food prices should help to tame inflation which has been persistently high.

Today's announcement recognizes the fact that many of the India's cost pressures are fuelled by internal inefficiencies that are unresponsive to interest rates. This was a necessary political decision and despite the pressure it will put on small "mom and pop" stores, it is likely to have far reaching benefits for the economy.

India has been in need of a catalyst. The rupee has become overextended and is due a bounce, the stock market is back in the region of prior support. This decision could at least contribute to a change in perceptions towards the government's ability to make tough decisions.