New Delhi: Foreign
direct investment (FDI) in India's largely unorganised retail
sector will help curb inflationary pressure by easing supply side
constraints and revive economic growth, analysts said.
"FDI in multi-brand retail is seen as a very important reform to
revive the economy and it will ease supply side pressures and
mitigate inflation and benefit, especially, the small and medium
enterprises by way of greater market access and higher profit
margins," said Sandip Somany, president, PHD Chamber of Commerce
Somany said overseas investments would boost business confidence
in Indian economy.
In a major step forward to give a push to reform agenda, Prime
Minister Manmohan Singh's government Friday took a decision to
allow upto 51 percent FDI in multi-brand retail and opened up the
aviation sector to 49 percent investment by overseas airlines.
"FDI infuses technological advancement, enhance production
possibilities and induce capital flows, which helps in maintaining
general macro economic stability," said Somany.
According to the latest Central Statistical Organisation (CSO)
data, the Indian economy grew at a sluggish 5.5 percent in the
April-June 2012 period as compared to 8 percent in the
corresponding quarter of the previous year.
The GDP growth had slumped to a nine-year low of 5.3 percent in
the quarter ended March.
The decision to push forward the reform process has come at a time
when business sentiments have taken a beating, GDP growth is near
decade low, inflation remained stubbornly high and the government
was criticised for "policy paralysis".
Sanjay Dutt, executive managing director, South Asia, Cushman and
Wakefield, said allowing FDI in multi-brand retail was a "much
awaited" and "much needed" initiative.
"In the next 12-24 months, international retailers will accelerate
their entry strategy. As a result, the developers involved in
shopping centre development, who were badly hit since 2008, will
also get a tremendous boost and we will witness serious players
expanding in this space," said Dutt.
"Over the medium- to long-term, the retail sector, real estate
industry and the end-consumers will benefit from the move and the
economy on the whole will gain momentum, depth and size," he
A Sakthivel, chairman of the Apparel Exports Promotion Council (AEPC),
said the move would create employment opportunities and boost
"It will give the much needed fillip to the entire textiles
industry. Employment opportunity will be created in plenty.
Manufacturing activities will get a boost," said Sakthivel.
The AEPC chairman said overseas investors would help create better
infrastructure in India's retail sector that would benefit farmers
as well as end users.
"Farmers will get better price of the produce as well as consumer
will derive value for their money. It will lead to easing of
inflation in the country. Gradually GDP will pick up and economic
outlook will improve," Sakthivel said.
However, Ajay Jakhar, chairman, Bharat Krishak Samaj, said the
government should have done more to address the concerns of
"We are not exactly thrilled as we would have hoped for more
conditions to help farmers become a part of India's growth story,"
Leading industry chambers also hailed the government's decision,
saying overseas investments would help improve sentiments.
"The move to open up multi-brand retail is a major step in the
right direction and this will not only end a long standing
uncertainty in policy making but also boost investors' confidence
besides promoting supply chains in the agriculture sector," Adi
Godrej, president, Confederation of Indian Industry (CII)
R.V. Kanoria, president, Federation of Indian Chambers of Commerce
and Industry (FICCI) said the decision would usher in a retail
revolution in the country.
"There are several benefits that would flow from this decision. We
will see infusion of new technology across the agriculture value
chain as well improvement in the back end infrastructure," said
"There will be a multiplier effect in terms of employment
generation and domestic manufacturers will benefit as they
integrate with the supply chains of global retail majors.
Consumers will have a wider choice and get better deals," Kanoria
(Gyanendra Kumar Keshri can be contacted at firstname.lastname@example.org)