FDI will help curb inflation: Rangarajan

By allowing foreign direct investment (FDI) into multi-brand retailing, and so modernising the sector in an organised manner, inflation would be better contained through the development of back-end infrastructure and the attendant benefits to farmers, said C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council.

“Modern retail has been found to offer better prices to consumers than traditional retail,” he said in the inaugural address at a seminar on ‘Organised retailing vis-a-vis farm economy of India’ today.

Rangarajan said the recent decision to allow FDI in multi-brand retail would substantially boost the sector. Also, half the total investment brought in would be invested in back-end infrastructure.

The fear that FDI could result in large-scale replacement of small retailers was misplaced, he said. “India is a vast country. There will be a place for large retailers as well as small farmers,” he added.

However, he acknowledged, kirana, small and marginal traders would be affected once the share of overall modern retail in food reached 25-30 per cent.

Yet, he went on, these stores and street hawkers could become a part of the modern retail change story if they could be assimilated into organised retail or were upgraded through infusion of capital, better training and franchises.

Growth, prices
With the government going into a reform mode, Rangarajan expects the growth rate to be better next year than the current year's projected one of 6.7 per cent. Adding: “In the 12th five-year Plan, we have projected a growth rate of 8.2 per cent, which means the growth rate in the final year of the Plan period should be around nine per cent,” he said., in reply to a question.

He said the immediate impact of a rise in any administered price would jack up the price index. Yet, he justified the recent diesel price rise of Rs 5 a litre, saying in the absence of such a measure, the fiscal deficit would be higher. “Over the medium term, it is the best thing to do. The attempt is to keep the fiscal deficit as close as possible to what is indicated in the Budget,” he said.

He expects the current account deficit to decline to 3.5 per cent of gross domestic product this year, from 4.2 per cent last year. Gold imports were expected to be lower and coal imports would also decline, on account of an increase in domestic output, he said.

The rate of inflation by the end of this year, he said, would be 6.5-7 per cent.