FDI in retail may bring down prices: Crisil

Foreign investment in multi-brand retail could help ease the problem of high food prices, an issue on which the government is fighting a major political battle, research firm Crisil said.

The issue of high food prices had stalled parliament throughout the last week. The food inflation, which had earlier peaked at over 21 per cent, came to its lowest at 9.67 per cent for the week ended July 17.

Food inflation has mostly remained in double digits ever since it was introduced in November 2009. Opening multi-brand retail to foreign direct investment (FDI), could stimulate investments in cold chains and lead to a drop in prices of vegetables and fruits, Crisil said.

"...allowing FDI in multi-brand retail has the potential to reduce the prices of perishable food produce such as fruits and vegetables in India over the long term," it said.

The change in FDI policy is likely to stimulate a flow of investments from organised retailers and logistics companies into establishing quality supply-chain infrastructure for fresh fruits and vegetables, Crisil said.

The wastage in the supply chain and the commission to trade intermediaries inflate the final price paid by Indian consumers for fruits and vegetables.

"Indian consumers pay nearly 2-2.5 times the price paid to a farmer as compared to 1-1.5 times in developed markets where the penetration of organised retail is much higher," Director of Crisil Research Nagarajan Narasimhan said.

India does not allow FDI in the politically sensitive multi-brand retail sector but 51 per cent foreign investment is permitted in single-brand retail. The industry ministry had released a discussion paper on opening the multi-brand retail sector to FDI and sought public comments.

If allowed, global retailers like Wal-Mart, Tesco, Carrefour and Metro would be allowed to open their front-end outlets selling an array of products. Crisil also said that almost 50 per cent of the annual wastages can be prevented if fruit and vegetable retailers have access to specialised cold storage facilities and refrigerated trucks.

The research firm estimated the vegetable and fruit wastages in 2009-10 at about Rs 630 billion.