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 and Industry.
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 up to 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 help in maintaining general macroeconomic 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 added.
A Sakthivel, chairman of the Apparel Exports Promotion Council (AEPC), said the move would create employment opportunities and boost economic growth.
"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 farmers.
"We are not exactly thrilled as we would have hoped for more conditions to help farmers become a part of India's growth story," Jakhar said.
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 Kanoria.
"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 added.