FDI in retail is necessary to push GDP growth and deal with high current account deficit, besides bringing in technological improvements into the sector, US investment banking giant Goldman Sachs said today.
"Every 1.7 dollar of foreign investment can generate one dollar of GDP growth, which is the lowest amount, simply because it has so many different linkages as opposed to putting in an additional dollar in banking," Goldman Sachs India Managing Director and Chief Economist Tushar Poddar said after announcing its India outlook for 2013.
He said that in the medium-term there are several benefits of FDI in retail to the economy. "There is very high current account deficit, so we need FDI, we need inflows."
The government today won an Opposition motion against 51 per cent FDI in multi-brand retail with a comfortable margin in the Lok Sabha. The motion will be voted up on in the Rajya Sabha on Friday.
The country is running a high current account deficit (CAD) on the high trade deficit back of rising imports and steeply falling exports. In October, the trade deficit jumped to a high of USD 21 billion.
Similarly, CAD touched a massive 4.2 per cent of GDP in the last fiscal after touching a record high of 4.5 per cent in the March quarter. Though in the first quarter of this fiscal it tempered a bit to 3.9 per cent of GDP.
The foreign direct investment in the sector brings technological improvements as it generates back-end structure, Poddar said, adding, "it also creates linkages to the economy".
Moreover, he said, every dollar of investment made into the retail, generates more into GDP growth then in any other sectors.
However, Poddar said the quantum of investment would depend on factors such as the number of states which implement it as also the number of cities it is allowed in.
Last week, Goldman had forecast the domestic economy to grow from 5.4 per cent in 2012 to 6.5 per cent in 2013 and remain high through 2015-2016.
It had also upgraded the country's stock market to "overweight" and had pegged a December 2013 Nifty target of 6,600 points.
The brokerage cited three factors for the optimism such as a decline in oil prices in real terms over the next few years, a more favourable external demand outlook and domestic structural reforms which can ease some supply-side constraints, according to Goldman Sachs.