Will high vegetable prices make critics see the benefits of FDI in retail trade?

It might be too much to expect that a mercurial leader like the Trinamool’s Mamata Banerjee can be won over by reasoned argument. But anything is possible in politics; as in love and war! So dare we suggest the UPA government could try using the latest consumer price index ( CPI) data released on Tuesday to its advantage; in particular, to convince the West Bengal leader of the need to allow foreign direct investment ( FDI) in retail trade? According to data released by the government, retail inflation was once again back in double digits at 10.03% in August, against 9.86% the previous month.

While the CPI in urban areas rose to 10.19%, price rise in rural areas was slightly lower at 9.90%. And no, the culprit was not the hike in the price of diesel — that will be captured only in the September data — but vegetables. Vegetable prices rose by an astounding 20.79%, followed by food and beverages at 12.03%. Prima facie, it is hard to think of anything less likely to sway the West Bengal leader, who is always quick to make political capital of her concern for the aam aadmi.

But the reality is high vegetable prices at the retail consumer end are the direct consequence of the fact that close to 40% of our fruit and vegetable produce never reaches the consumer but is left to rot in farms and local mandis across the country. Why? The reason is that we lack cold storage chains, warehousing facilities and the supply-chain logistics that the modern large-scale retail industry provides, thereby ensuring speedy and efficient movement of produce from farms to final consumers. This is where FDI can play a major role. India lacks a modern logistics industry. FDI can catalyse a change in this. Both farmers and consumers could benefit; farmers would get a higher price for their produce and consumers, a lower retail price.

This is not to say FDI in retail trade is a magic wand that will bring down prices immediately. But it will bring new efficiencies into the entire supply chain and, in the process, create not only additional jobs but also squeeze the margins of middlemen who presently exploit both farmers and consumers. Agreed, Mamata has not been amenable to reason in the past; nonetheless, it is worth a try!