The new regulations don't require parliamentary approval but, to set up shop, foreign retailers such as Wal-Mart and Tesco must get approval from the government of the state where stores will be located.
Five state leaders have already made it clear they're unwilling to let in foreign companies. Two of the Congress' main coalition allies also oppose the policy.
As the argument raged, Ikea chief executive Mikael Ohlsson visited India to evaluate the new rules.
Ikea has long wanted to come to India, but declined to do so under the old investment rules, which required it to work with an Indian partner.
Addressing a meeting of the Congress party's youth wing, Prime Minister Manmohan Singh said the regulations would improve transportation and storage of food supplies and lead to the creation of new jobs.
The opponents of the policy, which would allow big foreign retailers to set up supermarkets only in major cities, say it threatens millions of India's small traders.
India's Commerce Minister Anand Sharma has said that the change will be a boon for both consumers and farmers rather than a threat to small store owners.
He said the new rules would edge out unscrupulous middlemen who eat into the profits of the small farmers.
Sharma said it would also bring down the cost of food for everyone, eliminate spoilage that claims up to 40 per cent of all fresh produce, and create millions of jobs.
In a move that was widely perceived as capitulation to its critics, the Ministry of Commerce on Tuesday said that to take advantage of the new investment rules, foreign companies must source at least 30 per cent of manufactured and processed products from "Indian micro and small industry".
The change could violate India's World Trade Organisation obligations, which prohibit mandatory local sourcing requirements to the extent that they disrupt international trade.
- AP
