CRISIL Ratings has said that it expects a foreign direct investment (FDI) inflow of USD 2.5-3.0 billion over the next five years in the multi-brand retail sector.

The research firm has released its report on Foreign direct investment (FDI). The report shows that the food and grocery (F&G) segment will attract the highest share of the likely FDI inflows. It says that the condition specifying 50% investment in back-end infrastructure suits with the commercial requirement in the F&G segment.

The F&G segment accounts for about two-thirds of Indian retail sales but organized sector sales in the segment is only 2 per cent.

Mr. Ajay D'Souza, Head - CRISIL Research said, "To improve profitability in the F&G segment, retailers need to control their supply chain costs and build scale. Foreign retailers, with their access to capital and technology, are well placed to leverage this opportunity."

The union cabinet recently cleared proposal to relax Foreign Direct Investment (FDI) norms in eh country's retail sector. The cabinet approved a plan to allow 51% foreign direct investment in the supermarket sector in the country. The move will allow global giants like Wal-Mart, Tesco and Carrefour to enter the Indian market.

The department of industrial policy and promotion of the India government had put forward a proposal to allow 51% FDI in multi-brand retail and 100% in single-brand retail in the country. Most union ministries are believed to have given their consent to the proposal and a decision is expected next week on the matter. The move will allow foreign players to bring expertise in logistics and investment, which could help address supply bottlenecks in the country.

The government will subject supermarkets to strict local sourcing requirements and minimum investment levels aimed at protecting jobs. The central government has also said that individual states will be allowed to veto foreign retailers.