Multi-brand retail FDI good for India: RBI

Multi-brand retail FDI good for India: RBI

Controversial retail FDI decision of govt,panned by Oppn,received thumbs up from RBI.

Government’s decision to allow FDI in multi-brand retail will help increase productivity and ensure an efficient foodgrain distribution network to tackle high food prices,RBI Deputy Governor Subir Gokarn said here today.

“The ultimate solution to high food prices is very simply more production of things that people consume more. You might debate the merits and demerits of FDI in (multi-brand) retail.

But let’s focus on the basic problem. We need to increase productivity and distribution efficiency”,Gokarn said at a function here.

Observing that India has a low foodgrains productivity and inefficient distribution,he said increasing the scale of investments in organised retail is one way to increase productivity and distribution efficiency.


“FDI is an enabler of that. Whether you accept the argument that FDI will do this or not,we have low productivity,we have inefficient distribution (mechanism)”,Gokarn said at the 102nd AGM of Southern Indian Chamber of Commerce and Industry.

He called for solutions to take the country’s economy towards a strong growth momentum.

“We have to look at the stress points. What are the stress points?. We have to look at the sources of imbalances in the macro-economic situation and we have to find solutions that will provide robust responses to these constraints”,he said.

The Deputy Governor also pointed out that if food prices keep on increasing,it would impact wages and subsequently lead to inflationary pressures.

“It is also important to recognise that if food prices keep growing,that impacts wages,which impacts expectations and in turn feeds into the inflationary process”,he said.

He said RBI has been trying to play a “balancing act” to maintain credibility and meet expectations of various stakeholders “without putting undue disproportionate pressure on the growth momentum.”

Gokarn said the demand for two-wheelers,television sets and cellphones had grown by “leaps and bounds” in the last 10-15 years,but there was not as much demand growth for food products.

“Why should we not expect to see the same for food and people moving beyond rice and wheat to other items?” he asked.

He said the supply of two-wheelers,television sets and washing machines or air-conditioners was growing in multiples of 20 or 30 on their output.

“This is not matched or not seen in the food sector,where productivity of many things has remained quite stagnant.

Persistent imbalances in demand-supply have resulted in this very strong and structural inflationary pressure”,he said.

Observing that India has a “fiscal problem” and there is a need to find a solution to it,he said,”no solution will work with any effectiveness unless the (government’s) subsidy is addressed because it is by far the largest single burden on government finances”.

He said global and domestic developments would have an influence on the “economy’s” growth and,in particular,to the inflation trajectory.

Later,speaking to reporters,Gokarn said the balance of risks towards growth and inflation would determine the outcome of policy changes that have happened recently.

He said RBI would meet the Indian Banks’ Association later this week,on the requirement in some policy changes.

“We will take everything that has happened over the last several weeks into account and will formulate decision. The process to reach that decision is just beginning. We will have the first such meeting on Friday,with the IBA and from there on,we will consult a variety of stakeholders and will take a decision”,Gokarn said.

To a query on inflation,he said,”In our last projection we have said it would remain above five (per cent) till the end of the year. Certainly,we will revise those projections in our next review. I cannot really comment. That number is yet to be in front of us.”

On RBI’s regulation towards banks lending loans against gold jewellery,Gokarn said,”I think what we have been focused on is that the risks in lending towards gold are controlled. That is the basis for our actions with respect to gold loan companies from some months ago. We are not here to discourage or encourage anything. But we are sure that it should not build up into a systemic risk”.

On the recent revision of diesel prices by Oil Marketing Companies,he said,”We have recognised the likely short-term impact of diesel price revision on inflation numbers. But we have to look at it,in terms of the (growth) trajectory and to the extent of helping to contain the fiscal deficit”.

Gokarn added,”Let’s not forget that if you see a hike in diesel prices along with the hike in electricity prices,both of these will impact the index.

“But (if) more power becomes available from the grid,then people will use less diesel to generate power and the average cost of electricity might go down. So that is going to have an impact on the overall inflation numbers as we go forward. We have to be little sensitive to these various adjustments that might take place.”

Ahead of their second Quarter Review of Monetary Policy slated for October 30,Gokarn said RBI would take everything into account over the last six weeks into consideration.


“(It will be) based on the impact of growth risks and inflation risks. It will be a holistic perspective”,he said.