FDI in retail will help check price rise, says FM

“Two policy changes can have multiplier effect and large benefits to manage inflation, that is, reforms in Agriculture Produce and Marketing Committee (APMC) Act and Foreign Direct Investment in multi-brand retail,” Mukherjee said in reply to a Lok Sabha question on Friday quoting from the recommendations of the inter-ministerial group on review of the overall inflation situation in the country.

Similar sentiments were echoed by Reserve Bank of India Governor D Subbarao, who said FDI in multi-brand retail would help improve supply chain and also contribute to reducing inflation.

The finance minister’s defence of its FDI move is designed to blunt the Opposition assault over price rise, although it is hardly likely to convince the critics of opening retail sector. The government had on Thursday thrown open India’s estimated Rs 30-lakh crore retail sector to foreign players by allowi­ng 51 per cent investment in multi-brand retail and freeing the single brand retail compl­etely.

Analysts have called it the boldest ever move taken by the United Progressive Alliance government, which will not only help shed its image of policy paralysis but also boost economic growth, rein in stubbornly high inflation and help prop up rupee, which has slid drastically, dampening investor sentiment and raising the cost of imports in Asia’s third largest economy. Headline inflation has been hovering above 9 per cent for the past 11 months and monetary steps taken by the RBI in the past one year have yielded little result. In this background, government measures to boost foreign fund flows are expected to steady economic activities and curb prices.

Besides FDI in retail sector, the Finance Ministry recently raised investment limit for foreign institutional investors in government securities and corporate bonds by $5 billion each, a move expected to enhance foreign fund flows.

The government is also planning to allow qualified foreign investors to directly buy equities in the stock market. Currently, only overseas high net worth individuals with a minimum net worth of $50 million and registered as a sub-account of foreign institutional investors (FIIs) are allowed to directly participate in the stock market.