India formally eliminated restrictions on foreign investment in its single-brand retail sector on Tuesday, opening the door to the likes of Swedish furniture giant IKEA to open stores in Asia's third largest economy.

Foreign retailers that want to invest beyond the previous cap of 51 percent ownership will need to source 30 percent of their goods from small and village industries, said the government, which faces five state elections in the next few months.  

Big local retailers cheered the change, which was pushed through by a government that has struggled to shake off perceptions of policy drift at a time when economic growth is slowing and inflation remains above 9 percent.