* Opening up to FDI to help farmers - food processing min
* Food min says hopeful of opening up retail in 2011
* Wal-Mart CEO says to buy directly from more India farmers (Adds planning commission support paragraphs 6-7)
By Ruchira Singh
NEW DELHI, Oct 26 (Reuters) - India sounded a positive note on Tuesday on opening up to foreign direct investment in the massive and politically sensitive multi-brand retail sector by global players like Wal-Mart and Carrefour.
India's retail sector is largely closed to foreign firms and favours small family-run stores, with 51 percent of FDI allowed only in the single-brand retail sector. Multi-brand retail is restricted to cash-and-carry or wholesale outlets.
Opening up the sector would ease massive supply bottlenecks that have contributed to keeping inflation stubbornly high in India.
Food Processing Minister Subodh Kant Sahai backed calls by Wal-Mart, the world's largest retailer, to open up parts of the tightly-regulated $450 billion retail sector and hoped this would happen next year.
"I am in favour of it because this will give market-driven farming to farmers," Sahai told reporters on Tuesday at an event attended by visiting Wal-Mart Stores Chief Executive Mike Duke.
India's Planning Commission also backed the proposal, Deputy Chairman Montek Singh Ahluwalia said on Tuesday.
"There is absolutely no reason why we shouldn't allow foreign direct investment," the powerful adviser told reporters.
Still, it is not the first time the government has hinted at relaxing the rules. Over the past few years the government has moved forward on reforms only to backtrack in the face of local opposition.
Wal-Mart, in partnership with India's top telecoms group Bharti Enterprise, operates four cash-and-carry outlets in India.
India, which along with China is leading annual economic growth among major economies, is increasingly a hot investment destination for global companies keen to tap into the massive, decentralised yet heavily regulated market.
POLITICAL MINEFIELD
An estimated 40 percent of India's farm produce spoils before reaching consumers -- an alarming statistic in a country where millions go hungry. Cold storage is scarce and expensive.
With family-run stores accounting for over 90 percent of domestic trade, the issue remains a political minefield for a ruling Congress party fearful of losing its populist appeal through potential job losses and protests from farmers.
Many local retailers still oppose relaxing restrictions for fear that global titans will drive local stores out of business.
But Prime Minister Manmohan Singh's government has begun to speak more positively recently on relaxing the rules, hoping the benefits of such a move -- creating thousands of jobs and reining in inflation by curbing waste -- would douse political opposition.
India's commerce and industry ministry in July released a discussion paper on opening the sector, but it steered clear of suggesting changes to the existing investment cap.
Singh's political boss and Congress party chief Sonia Gandhi has so far publicly been reluctant to embrace the changes, part of a general slow pace of reforms that has frustrated many foreign and local investors.
Wal-Mart's Duke told reporters on Monday he was getting a "very positive" feeling from officials about further opening up the sector to FDI. The company has for years sought greater access to Asia's third largest economy.
Duke said on Tuesday that Wal-Mart would step up direct sourcing in India from farmers, aiming to raise this to 35,000 small and medium farmers by the end of 2015.
"We are currently buying fresh products direct from over 600 farmers and are working with them to increase their yields and best practices," he said. (Additional reporting by Rajesh Kumar Singh and Manoj Kumar; Writing by Ruchira Singh and Paul de Bendern; Editing by Alistair Scrutton and Stephen Nisbet)