Saurabh Das/Associated Press
Wal-Mart, a partner in this Bharti-Walmart store near Chandigarh, India, is expected to be a major beneficiary of new policies.
MUMBAI, India - When Indian policy makers announced last week that they would allow big-box foreign retailers like into the country, they pledged that it was the beginning of a long-awaited second wave of economic reforms that would make the country more hospitable to business.
If they follow through, it could prompt a new economic boom in India, where once-brisk growth has slowed markedly in recent years.
But it is a big if.
Just a few days into the effort, concern is growing about whether the latest steps, which also include reductions in fuel subsidies and changes in aviation policy, go far enough, and whether the government will be able to carry out even these limited proposals in the face of stiffening opposition from political allies and opponents.
On Tuesday, an important regional leader, Mamata Banerjee, announced that she would withdraw her support from the governing national coalition on Friday afternoon if policy makers did not abandon their change agenda. Ms. Banerjee, a tenacious politician from West Bengal, last year helped torpedo an earlier effort to open the doors to foreign retailers.
Even if the governing coalition, led by the Indian National Congress Party, retains power, it is unclear how it will push through more changes with the help of other partners. And if it keeps Ms. Banerjee in the alliance by accepting her demands, the Congress party will find it difficult to make the case for bigger changes in taxation and policies governing land and natural resources. Skepticism of the government's commitment to change runs deep, given a long history of disappointments.
“I am grossly underwhelmed,†said Arvind Singhal, chairman of Technopak Advisors, an Indian consulting firm. “This is just the tip of the much larger thing that needs to be done.â€
But analysts and executives say the new thrust is critical to reviving flagging business confidence and persuading companies to dust off mothballed investment plans. India's economy, which recovered quickly to an 8.4 percent annual growth rate after the financial crisis, is now slowing sharply and could grow as little as 5.4 percent in the fiscal year that began in April, economists say.
The Congress-led alliance has struggled to approve any significant economic policies in the eight years it has been in power. So letting foreign supermarkets enter the country, in particular, had become a litmus test of sorts for many investors and about its commitment to liberalizing India's economy.
“This will be a game changer not because of its immediate impact but because it redefines the feasibility of reforms in the current political environment,†said Eswar Prasad, an economist at Cornell and the Brookings Institution who advises the Indian government.
Still, analysts complain that as politically difficult as the most recent changes were to enact, they do not go far enough.
The new retail policy, for instance, will allow each of India's 29 state governments to block stores owned by foreign chains like Wal-Mart and Tesco. In aviation, the new policy would allow foreign airlines to buy only a 49 percent stake in their Indian counterparts, most of which are losing money. That restriction, with India's seemingly limitless financial support for the beleaguered state-owned Air India, is expected to deter many would-be investors.
Some in the government appear to recognize that they must do more. On Monday, Palaniappan Chidambaram, who recently was named finance minister and helped undo some of India's socialist and policies during a previous stint in the job, said that the government would announce more changes before the end of October.
If the new retail policy does take effect as announced, companies like Wal-Mart and Ikea could be big winners.
Retail sales in India total about $500 billion a year, but less than 10 percent take place in modern stores. Much of retailing is made up of small shops owned and run by families that have long opposed foreign investment. But young Indians are increasingly drawn to air-conditioned malls and department stores where couples and gaggles of teenagers can hang out openly without worrying about offending their more conservative parents and grandparents.
Wal-Mart, which with an Indian partner has 17 wholesale stores in India, is expected to be the biggest immediate beneficiary of the new policies, which will allow it to take a 51 percent stake in an Indian retail operation. Retail chains with a foreign investor will be allowed to open stores in and near cities with at least one million people as long as states give consent, and both New Delhi and Mumbai are expected to get new outlets.
Rajan Bharti Mittal, an executive of Wal-Mart's Indian partner, Bharti Enterprises, said the conditions imposed by the government - including a requirement that foreign retailers spend at least $100 million, with half of that going to processing and other back-end operations - were acceptable.
