"In multi-brand retail, the things can be shipped at a cheaper rate from the producer to the consumer," the central bank's deputy governor Kamalesh Chandra Chakrabarty told reporters on the sidelines of an industry event here.

"So, if you are able to pass on the benefit to the customer, then the price comes down and if prices are reduced, so will inflation. Globally it has been seen to have happened," Chakrabarty said.

The union cabinet in a meeting Thursday evening chaired by Prime Minister Manmohan Singh decided to allow 51 percent foreign direct investment (FDI) in multi-brand retail, stating that it would help bring down inflation, reduce wastage and improve farmer productivity.

The cabinet also allowed 100 percent equity in single brand retailing.

According to Chakrabarty, the model, if implemented effectively, is known to lead to decline in  prices.

"Globally, it is considered if effectively implemented, prices decline. The difference in the price between producers and consumer gets narrowed, if implemented in a correct manner," he said.