RBI hopes FDI in retail will reduce inflation

The Reserve Bank today expressed the hope that foreign direct investment in multi-brand retail will help in bringing down inflation.

"..Certainly it (FDI in multi brand retail) would help improve supply chain and we hope it should also contribute to reducing inflation," Reserve Bank of India (RBI) Governor D Subbarao told reporters here.

The Union Cabinet had yesterday approved 51% FDI in multi-brand retail, paving the way for global giants like WalMart to open mega stores in Indian cities.

Subbarao said 51% FDI in multi-brand retail would attract foreign capital into the country. "It is a visible measure (taken by the Centre) that will bring in right capital in the country," he said.

Earlier in the day Subbarao had said the decision of the Cabinet allowing 51% FDI in multi-brand retail would improve logistics, contain inflation and improve quality of life of over 50% of country's population.

In his speech Subbarao described rising inflation as a "problem of success" and made a strong case for raising farm productivity to address the root cause of food inflation, which has been hovering around 10%.

"The supply-demand gap in the food sector is, in part, a problem of success -- a consequence of a shift in dietary habits from cereal to protein-based foods reflecting rising income, especially rural incomes," he said.

While the food inflation marginally came down to 9.16% for the week ended November 12, the headline inflation was 9.73% in October.

To achieve stable macroeconomic environment, RBI chief said it would be necessary to bring down inflation to 5% and reduce fiscal deficit at the centre as well as states.