Crisil Research today said permitting foreign direct investment (FDI) in multi-brand retail will attract foreign investments of about $3 billion over the next five years.
"FDI in multi-brand retail will stimulate investment in Indian retail. Crisil estimates FDI inflows of $2.5–3 billion over the next five years," it said in a report.
It said the funding would be gradual and foreign retailers are unlikely to gain a dominant share over the next five years.
Last week, the Cabinet cleared 51% FDI in multi-brand retail and 100% in single-brand retail.
The Cabinet decision is likely to catalyse joint ventures between Indian and foreign organised retailers, Crisil said.
The FDI proposal offers good prospects for large established Indian retailers.
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"However, for smaller and regional retailers, scale of operations and control over costs will determine their ability to weather pressures of aggressive expansions by large retailers," Crisil Ratings Head Anuj Sethi said.
In the past five years, total FDI into India in all sectors was $160 billion.
According to Crisil, the food and grocery (F&G) vertical would attract a larger share of the likely FDI inflows. F&G accounts for two-thirds of Indian retail sales, but presently has organised retail sales of only around 2%, the lowest among retail verticals.
"To improve profitability in the F&G segment, retailers need to control their supply chain costs and build scale," Crisil Research Head Ajay D'Souza said.