FDI in multi-brand retail will cool inflation: RBI

The Reserve Bank of India on Saturday said foreign direct investment (FDI) in multi-brand retail, if implemented properly, will cool down inflation, which has been hovering around the double-digit mark since December, 2010.

"Globally, it is considered that if (FDI in multi-brand retail) effectively implemented then prices decline. So, if you are able to pass on the benefit to customer, then prices come down. And if prices fall, so will inflation," RBI Deputy Governor K C Chakrabarty said. He was talking to reporters on the sidelines of a function to launch 'm-paisa', an initiative by HDFC Bank and Vodafone.

"The difference in the price between producers and consumers gets narrowed, but only if it is implemented in a correct manner," he said.

He said the central bank sticks to its projection of year-end inflation at seven per cent.

The government on Thursday allowed 51 per cent FDI in the multi-brand retail sector. It maintains the move would help in lowering prices. The guidelines for FDI in the sector are yet to be notified. Both the government and RBI have maintained that in India constraints on supply side is a major reason for high inflation.

While allowing FDI in multi-brand, the government said the foreign players will have to invest 50 per cent of the funds in back-end infrastructure, like cold storages. India loses perishable goods worth Rs one lakh crore annually in want of proper infrastructure.