Jaipur: The Reserve Bank of India on Saturday said 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, near here.

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

He also said the central bank sticks to its projection of year-end inflation at 7 percent.

The government on Thursday allowed 51 percent FDI in the multi-brand retail sector. It maintains the move would help in lowering prices. The guidelines for the foreign direct investment (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 percent 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. 

Amid reports of gullible investors losing money to fly-by-night operators, Chakrabarty advised that people should invest in funds only in registered organisations.

Answering questions on SKS Micro Finance repositioning itself as rural financial services firm, the Deputy Governor said it was up to the company to decide its own business
model.

"Everybody is free to have their business model. Yes it (SKS) can become an NBFC...(but) the moment it becomes NBFC, the lending by banks under priority sector will dry up," he
said.

Regarding a query on banks financing airlines companies, he said the RBI does not give sector specific guidelines to lenders.

"Our guidelines to banks are very clear. Wherever they (banks) feel they are not able to manage risk, they must not lend the money. This is general guidance," Chakrabarty said.

FDI in retail good for economy: CII

Foreign investment in multi-brand retail would help the overall economy of the country, CII President B Muthuraman said in Coimbatore on Saturday.

"It is a good move and the Confederation of Indian Industry (CII) welcomes it. The investments would do good for the overall economy and trigger job creation," Muthuraman, who was here to inaugurate a new office premises for the local chapter of CII, said.

Asked if he foresees a down trend in the rising inflation, he said it "doesn't look like it".

Addressing the CII members earlier, Muthuram had said CII has to play a larger role than merely helping the industry by contributing to India's growth.

Agencies