Needed, more than FDI in retail

The Planning Commission, the consumer affairs ministry and the agriculture ministry all agree that multi-brand retail must be opened to foreign investment. Let us hope the finance ministry too will make up its mind soon and the government will be in a position to put a closure to the debate and allow foreign investment in organised retail. But the government would be deluding itself were it to believe that a policy on foreign investment in the sector would suffice to galvanise the supply chain, excising layers of avoidable intermediation, waste, rent-seeking and inefficiency. Even as food prices go through the roof, farmers complain that they get a fraction of the price the consumer pays, robbing them of a price incentive to increase production. In the current situation of a catholic increase in the demand for all agricultural products, food as well as industrial, the biggest obstacle to fighting inflation is this feedback system that kills the positive price signal before it reaches the direct producer. This calls for constructive, proactive intervention, not just passive permission for foreign investment to rush in where domestic capital has feared to tread so far.

Remember Amul and Operation Flood? This initiative of the early 1970s transformed milk production in the country, connected the consumer and the producer through a direct, efficient supply chain and spawned a modern dairy sector that produces a range of milk products. The milk cooperative sector has the institutional capacity to transact with modern organised retail on an equal footing. If India could achieve this at a time when resources were relatively scarce, the know-how less commonly available, managerial skills rudimentary and logistics so much harder to negotiate, can’t India do even better today?

There is no need to limit the organisational form of the needed intervention to cooperatives. Farmer companies, producer cooperatives and modern retail can all compete to make the supply chain efficient. What we need is leadership and initiative to envision, empower and execute on the scale that India requires.