NEW DELHI, Sept 20 (Bernama) -- India's decision to allow 51 per cent Foreign Direct Investment (FDI) in multi-brand retail will result in investment of US$2.5 billion-US$3 billion in the retail sector over the next five years, primarily into the food and grocery (F&G) vertical.
Capital expenditure in the back-end supply chain will receive a boost given the mandatory 50 per cent investment clause, said CRISIL Research, India's largest independent and integrated research house.
An efficient supply chain will enable direct sourcing of fruits and vegetables, which will boost farmer realisations by 10-15 per cent and still bring down retail prices by 15-20 per cent, it said in a statement.
"Organised retail penetration (ORP) is expected to remain moderate at 10 per cent in 2016-17 compared with seven per cent currently. Moreover, the share of foreign retailers in organised retail is not expected to exceed 10-15 per cent by 2016-17.
"Even in China, where the sector was opened up to FDI 15 years ago, foreign retailers have a share of only 25-30 per cent in organised retail," CRISIL Research's president, Mukesh Agarwal said.
On Saturday, Indian government opened up its retail sector by allowing 51 per cent FDI in multi-brand retail trading, but state governments are given the choice to take it up or otherwise.
A minimum investment of US$100 million has been set, half of which necessarily has to be in creating storage and warehousing facilities in rural areas.
The move to open up the aviation sector to FDI will also, in the long run, draw more serious global players into the sector, given the size and growth potential of the Indian aviation market.
Foreign airline companies are now allowed to take up to 49 per cent stake in India's scheduled and non-scheduled air transport services.
However, addressing issues relating to taxes and levies on aviation turbine fuel will be critical to attract significant FDI into the sector, CRISIL opined.
These policy measures are a good beginning, it said.
"However, some of the more critical and sticky issues such as land acquisition, fuel availability, rollout of goods & services tax and a credible fiscal consolidation programme will need to be addressed to sustain the positive sentiment created by the recent announcements and materially lift India's growth prospects," it added.