The Indian government will shortly announce norms for foreign investment in the retail sector, with many restrictive conditions to ensure adequate protection for the small neighbourhood grocers, according to the Economic Times newspaper.

While the exact level of foreign investment is still being debated, it could be allowed up to 51%, said highly placed sources in the government. Some other conditions like a minimum equity capital of 500m rupees (US$11.5m) by the foreign investor and a fixed commitment to source raw food products locally will be imposed.

Sources said the prime minister has also indicated that a foreign investment regime in the retail sector will be in place within a few weeks. However, the government is planning geographical restrictions on large FDI-driven retail units to make sure they do not impinge on smaller departmental stores.

Retailers like Wal-Mart, Tesco and Home Depot will not be allowed to set up outlets in city centres. If allowed, they would largely be in and around suburbs so that they don't take away regular customers from small shop-owners.

The government may also put restrictions on the number of outlets.

Large retail owners may not be allowed to enter small towns and cities below a certain size of population.

The government may put another restriction by segmenting the retail category into food and grocery and high-value merchandise, and build appropriate legislation for them. A restrictive regime will enable India to continue to hold a bargaining chip while negotiating a comprehensive agreement on services at the WTO, officials said.

Senior officials, in some cases even CEOs, of large retail conglomerates such as Best Buy, Star Bucks, Carrefour, Kingfisher and Wal-Mart have met senior government officials in the past, including prime minister Manmohan Singh who have all given a clear indication of opening the retail sector this year itself, sources said.

Meanwhile, the ministry of consumer affairs is preparing a detailed note on organised retail so that a policy is in place before FDI is allowed in this category. The ministry is studying existing rules and regulations which have a bearing on large-format retailing which include labour laws, Essential Services Maintenance Act, Agricultural Produce Marketing Committee Act, Urban Land Ceiling Act, Rent Control Act, Weights and Measures Act and Shops and Establishment Act among others.

It is also looking into the laws relating to land acquisition, octroi and entry tax and municipal bylaws. Most of them fall under the jurisdiction of state governments and the policy will act as a model for states to follow, said sources.