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India's growth story still credible, FDI in retail to help: RBI

India's growth story is still "credible" and the move to open up the economy to global supermarket chains will help growth and controlling inflation, Reserve Bank of India (RBI) Governor Duvvuri Subbarao said on Friday.

"It's commendable that government has taken the initiative. Let's hope that it will improve the logistics chain and supply chain management in agriculture," Subbarao said in a speech in Chandigarh.

Late Thursday, the government approved 51% foreign direct investment in the supermarket sector, paving the entry of firms such as Wal-Mart, Tesco and Carrefour into one of the world's largest untapped markets.

"It's important for not only raising overall growth but also important for containing inflation and improving quality of life over 50% of population," Subbarao said.

Opening up the retail sector to global players has been a much awaited reform but has been long hobbled by political differences. The Congress-led government's biggest ally Trinamool Congress is opposed to the move.

The central bank chief said that inflation needs to be brought down to 5% initially and then even lower, consistent with India’s integration with global economy.

Subbarao said the current inflation situation is a consequence of both supply shocks and demand pressures. Monetary tightening needs to be supplemented by supply side measures to raise potential economic output, he said.

"Raising agricultural production and productivity is, important for containing price pressures, raising rural incomes and making growth more inclusive," Subbarao said.

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