“It is time for India to allow FDI in multi-product retail and the IMG recommends that the government considers this at the earliest as part of strategy to tackle inflation,” Chief Economic Advisor Kaushik Basu said.
Reform in the multi-product retail sector by allowing foreign investment to come will be beneficial for both farmers and consumers, Basu, who heads the IMG, said while outlining recommendations made by the IMG to rein in inflation.
The IMG, which was constituted in early February this year, has been mandated to look at the whole range of inflation policy issues, from distribution of food-grains and vegetables to macro policies connected to fiscal and monetary matters. Pointing out that the IMG is taking “a clear position” on FDI in multi brand retail, Basu said, “it is a recommendation to the government, which will take a call on the issue.”
The issue of allowing FDI in multi-brand retail has assumed political sensitivity with apprehensions being expressed from various quarters that such a move would be detrimental to interests of farmers as well as millions of “kirana” shop owners.
At present, India allows FDI only in single brand retail chains with a cap of 51 per cent. It also permits 100 per cent overseas investment in wholesale cash-and-carry format. Quoting studies by the IMG, Basu said, “India’s retail sector continues to be primitive and there is evidence that there are large losses that occur as products pass through the supply chain from farm to retail customer.”
“This in turn raises the price that consumers have to pay. Reform in this sector can be an effective inflation busting measure,” he said. The IMG argues that entry of FDI into multi product retail would provide remunerative prices for farmers and fair prices for consumers especially during the peak marketing season. However, the IMG recommends that FDI in the multi-brand retail should be allowed in a “properly regulated fashion”.
“We must guard against the risk of these new corporations becoming monopolistic and charging high prices,” Basu cautioned. The IMG has also recommended formulation of a new updated model Agriculture Produce Marketing Committee (APMC) law, which could be adopted by the states to remove supply bottlenecks at the local level.
“There is a need to revise the AMPC Act to reduce the price gap between farm gate and consumer prices. We need a model act to be adopted by states,” Basu said.