New Delhi: The government's move to allow 51 percent FDI in multi-brand retailing will attract investments of USD 2.5-3 billion in retail sector in next five years, Crisil Research said in a report on Tuesday.

"The decision to allow 51 percent FDI in multi-brand retail will result in investment of USD 2.5 billion-USD 3 billion in the retail sector over the next five years, primarily into the food and grocery vertical," the report said.

Capital expenditure in the back-end supply chain will receive a boost given the mandatory 50 percent investment clause, it said.

An efficient supply chain will enable direct sourcing of fruits and vegetables which will boost farmers realisations by 10-15 percent and bring down prices by 15-20 percent.

"Organised retail penetration is expected to remain moderate at 10 percent in 2016-17 with 7 percent currently," it said.

It further said the policy reforms initiative by the government has lifted the business confidence.

"Upward adjustment of diesel prices is inflationary in the short run but lifts business confidence by reducing fiscal stress and inflation in the long run. It thus paves the way for rate cuts by RBI" Crisil Senior Director and Chief
Economist D K Joshi said.

These measures, however, will not yield results immediately and does not alter the growth outlook for this fiscal "which we retain at 5.5 percent," Crisil said.

The immediate and much-needed positive impact of these measures will be on investment climate and business confidence, the report said.

Improvement in investor sentiment is expected to boost capital inflows, it added.

"The expected increase in inflows creates a strengthening bias to our call of the rupee at 53 to the US dollar by March 2013," Crisil said.

It further said the move to open up the aviation sector to FDI will in long run draw more serious global players into the sector.

"These policy measures are a good beginning. However, some of the more critical and sticky issues such as land acquisition, fuel availability, roll out of goods and 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.

(Agencies)

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