Change in FDI policy in retail sector
The RBI has tried to make this inflation situation comfortable at the cost of increasing the already high interest rates by 50bps in its quarterly review on July 26, 2011.
By Pooja Suri, |
The pace of economic policy reforms have slackened considerably in the recent years. On top of this inflation has been over 9 per cent since December 2010 and in June this year inflation soared to 9.44% from 9.06% in the previous month. The RBI has tried to make this inflation situation comfortable at the cost of increasing the already high interest rates by 50bps in its quarterly review on July 26, 2011.
There has been a change in the policy dimension in the recent weeks - the economy came one step closer to a particularly significant reform in the multi – brand retail sector. A committee of secretaries has recommended 51% of foreign direct investment (FDI) in multi - brand retail with some conditions paving the way for the entry of some of the world’s biggest retailers such as Wal – Mart, Carrefour and Tesco to setup shops.
We have been battling inflation for a long time now. The constant trade off between inflation and output is soon going to put pressure on the economy to reform. Allowing FDIs to come in single brand as well as multi brand industries is going to combat inflation better and it is the reform the country requires.
If the FDI policy reform is approved, it can have significant benefits for the Indian economy. Allowing FDIs in organised retail will be significant in checking the price rise. For one there will be a significant rise in the foreign direct investment which may help in solving India’s chronic food distribution problem and high food inflation.
The supply chain from the farmer to the consumer which suffers with severe inefficiencies mostly due to the middleman will definitely show an improvement.
However, this reform will not be easy. It has met with resistance from retailers and traders all over the country. India's biggest traders' association held a series of demonstrations against proposals to allow supermarket chains like Wal-Mart and Tesco into the country's retail sector. They believe that the international retail companies by selling at cheaper prices will turn the independent traders into suppliers for these multinational firms.
While we have to increase the size of the economic pie, its time to redistribute the size of its slices. The liberalisation policy adopted by the government in 1991 seems to be on track again. The question now is whether the government will realize the urgency of this liberalisation or not?
There has been a change in the policy dimension in the recent weeks - the economy came one step closer to a particularly significant reform in the multi – brand retail sector. A committee of secretaries has recommended 51% of foreign direct investment (FDI) in multi - brand retail with some conditions paving the way for the entry of some of the world’s biggest retailers such as Wal – Mart, Carrefour and Tesco to setup shops.
We have been battling inflation for a long time now. The constant trade off between inflation and output is soon going to put pressure on the economy to reform. Allowing FDIs to come in single brand as well as multi brand industries is going to combat inflation better and it is the reform the country requires.
If the FDI policy reform is approved, it can have significant benefits for the Indian economy. Allowing FDIs in organised retail will be significant in checking the price rise. For one there will be a significant rise in the foreign direct investment which may help in solving India’s chronic food distribution problem and high food inflation.
The supply chain from the farmer to the consumer which suffers with severe inefficiencies mostly due to the middleman will definitely show an improvement.
However, this reform will not be easy. It has met with resistance from retailers and traders all over the country. India's biggest traders' association held a series of demonstrations against proposals to allow supermarket chains like Wal-Mart and Tesco into the country's retail sector. They believe that the international retail companies by selling at cheaper prices will turn the independent traders into suppliers for these multinational firms.
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While we have to increase the size of the economic pie, its time to redistribute the size of its slices. The liberalisation policy adopted by the government in 1991 seems to be on track again. The question now is whether the government will realize the urgency of this liberalisation or not?
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