UPDATE 1-India panel to meet this month on FDI in multi-brand retail-sources

(Recasts, adds new sources, detail)

* Secretaries to meet in July to take a call on FDI in retail-govt source

* No timeline yet for introduction of FDI in retail-govt source

* FDI in retail would come with conditions-fin min source

By Abhijit Neogy

NEW DELHI, July 1 (Reuters) - A panel of top Indian officials is likely to meet this month to decide on allowing foreign direct investment in multi-brand retail, two senior government sources said, an indication New Delhi wants to move ahead on a long-delayed reform initiative.

Global retailers such as Wal-Mart Stores , Carrefour , Tesco and Metro AG have long sought greater access to a fast-growing but restrictive Indian retail sector that is dominated by mom-and-pop operators.

A ministerial panel has recommended introduction of foreign direct investment in retail to ease pressure on the agriculture supply chain and tame inflation that is currently above 9 percent, with food prices one of the main drivers.

The Times of India, citing government sources, reported on Friday that the Indian cabinet is expected to approve a proposal to open up multi-brand retail in Asia's third-largest economy, allowing global chains to enter by next March.

The newspaper report said individual states would have the right to approve investment.

If foreign investment in multi-brand retail is introduced in India, it will come with conditions, a finance ministry source told Reuters, as the government wants to protect small operators that control more than 90 percent of retail trade in the country.

Multinationals will only be allowed entry in cities and towns with a minimum population threshold, and will need to follow strict sourcing and selling rules.

"The idea is that it should not just benefit our local kirana shopkeepers but should also be employment-intensive and generate greater domestic economic activity," the finance ministry source told Reuters.

Mom-and-pop stores in India are known as "kirana" shops.

Expectations that a decision to allow foreign direct investment in multi-brand retail may be closer to reality have risen in recent weeks as the government has taken action on a handful of delayed decisions, including raising diesel prices and approving Vedanta's $6 billion purchase of oil producer Cairn India , albeit with conditions.

Prime Minister Manmohan Singh's government, on the defensive over its handling of inflation and a spate of corruption scandals, has come under criticism from the main opposition party and others for so-called policy paralysis.

India now allows 51 percent FDI in single-brand retail and 100 percent in wholesale cash-and-carry operations. (Additional reporting by Neha Singh; Editing by Tony Munroe)