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Saturday 5 November 2011

Food price fuels retail FDI thought

Food price fuels retail FDI thought
New Delhi, Nov. 3: Food inflation has surged to a nine-month high of 12.21 per cent, prompting the government to consider opening up foreign direct investment (FDI) in multi-brand retail to tackle supply side glitches. The RBI’s tight monetary policy since March last year has also failed to bring the price spiral under control.
“Food inflation is still going high. It is dangerously above the double-digit figure,” finance minister Pranab Mukherjee said.
A senior commerce ministry official said much of the food inflation, apart from the seasonal variation, was primarily because of poor supply-side management, which could be addressed by opening up multi-brand retail.
“Modern retail will control inflation through better efficiencies and once there is economic advantage in sourcing from wholesale, small retailers (especially in rural areas) will switch to those options on their own,” the official said.
“Food inflation cannot be tackled by monetary policy. Interest rates may have peaked as demand is showing signs of waning,” N. R. Bhanumurthy, an economist at the National Institute of Public Finance and Policy, said.
For the week ended October 22, vegetables became 28.89 per cent costlier on a year-on-year basis, while pulses grew dearer by 11.65 per cent. Fruits were expensive by 11.63 per cent and milk cost 11.73 per cent more.
Eggs, meat and fish also became 13.36 per cent dearer, while cereal prices were up 4.13 per cent.
Anis Chakravarty, analyst with Deloitte Haskins & Sells, said, “It is an area of concern that as world food prices fall, food inflation in India has peaked to a nine-month high. Fears remain that supply side bottlenecks continue to be a critical factor. Headline inflation and the efficacy of monetary policy continue to be the larger source of concern.”
At present, India does not allow FDI in multi-brand retail, which employs 33 million people and is dominated by local grocery stores.
However, foreign investment up to 51 per cent is permitted in single-brand retail, while there are no restrictions in wholesale cash-and-carry business.
The retail business in the country is worth Rs 16 lakh crore, and about 96 per cent of the people are in the unorganised sector. Sources said the commerce ministry favoured a minimum investment of $100 million with at least 50 per cent earmarked for back-end infrastructure such as cold storage, soil testing labs and seed farming.

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