Goldman Sachs has said that foreign direct investment in retail would contribute more to the gross domestic product (GDP) than investment in most other sectors because of the deep linkages it has with the Indian economy.
Addressing media, Tushar Poddar, managing director and chief India economist, Goldman Sachs, said FDI in retail would have substantial benefits for the economy. “Although retail is only 15% of GDP it has deep linkages with the economy and for every Rs 1.7 invested in retail there is a one rupee increase in GDP.” He said that retail had a low incremental capital output ratio—a measure of efficiency of capital compared to sectors such as banking.
“Allowing FDI in retail can lead to significant capital inflows of a ‘sticky’ nature, increase technology transfers, lead to greater supply chain efficiencies and lead to deep linkages with the local economy. This would be particularly helpful in the agricultural sector, where supply chain bottlenecks are large,” said Poddar. He pointed out there are signs of an improvement in the investment cycle. “Liquidity has improved, short-term AAA CD rates have fallen by 100 bps since May. Business confidence, which was falling through the first half of 2012, appears to have stabilized. These suggest a modest increase in the investment cycle, rather than a large uptick,” he said.
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