Basu-led committee favours FDI in multi-brand retail

Also recommends revision in the APMC Act to tame rising food inflation.

The Inter-Ministerial Group (IMG) on inflation today suggested opening up of multi-brand retail to foreign direct investment (FDI) as a measure to tame inflation.

The group, headed by Chief Economic Advisor Kaushik Basu, also recommended amendments to the Agriculture Produce Marketing Committee (APMC) Act.

“It is recommended that the government consider two important steps to cut down the margin between farm-gate prices and retail price — reform of the APMC Act and reform in the multi-product retail sector,” Basu told a press conference.

He explained that correcting the margin between the price that farmers got and the price that consumers paid was not going to solve the problem of inflation for all times to come, but it could have a sharp desirable effect of bringing food inflation down and increasing the efficiency of food markets in the short term.

IMG said FDI in multi-product retail should be considered at the earliest, as reforms in this sector could be an effective inflation-busting measure. It, however, cautioned that the entry of foreign investors should be properly regulated and that India must guard against the risk of these new corporations becoming monopolistic and charging high prices.

The share of organised retail in the total retail trade is just over 4 per cent in India, compared to 66 per cent in Japan, 20 per cent in China, 55 per cent in Malaysia and 30 per cent in Indonesia.

On the APMC Act, IMG said it ought to be amended to enable farmers to bring their products to retail outlets and also allow retailers to directly purchase from farmers, without facing blockades by incumbent traders. It said the law had contributed to helping cartelisation and collusion among incumbent traders, and, therefore, there was a need to re-visit it.

“There is a model APMC Act that has not yet been implemented. Our view is that the model Act from 2003, when our inflation was low, may already be somewhat dated. It is, therefore, recommended that the government review and revise the model Act, keeping in mind the need to keep inflationary pressures down,” Basu added.

IMG was constituted in February 2011 and has had four meetings of the full group. It was given the task of studying and proposing policies pertaining to food article inflation and macro-economic demand management. The group’s mandate is to look at the whole range of inflation policy issues, from distribution of foodgrains and vegetables to macro policies connected to fiscal and monetary matters.