The Reserve Bank of India on Friday expressed the hope that foreign direct investment in multi-brand retail would help in bringing down inflation.

“...Certainly it (FDI in multi-brand retail) would help improve supply chain and we hope it should also contribute to reducing inflation,” Reserve Bank of India Governor D. Subbarao told reporters on the sidelines of a memorial lecture here.

Dr. Subbarao said 51 per cent FDI in multi-brand retail would attract foreign capital into the country. “It is a visible measure (taken by the Centre) that will bring in right capital in the country,” he said.

Dr. Subbarao described rising inflation as a ‘problem of success' and made a strong case for raising farm productivity to address the root cause of food inflation, which had been hovering around 10 per cent.

“The supply-demand gap in the food sector is, in part, a problem of success — a consequence of a shift in dietary habits from cereal to protein-based foods reflecting rising income, especially rural incomes,” he said.

Subsides on fuel, fertilizer, irrigation are bad

To achieve stable macroeconomic environment, the RBI chief said it would be necessary to bring down inflation to 5 per cent and reduce the fiscal deficit at the Centre as well as States.

Advocating fiscal consolidation and containment of fiscal deficit, Dr. Subbarao termed subsidies given on fuel, fertilizer and irrigation as ‘bad' ones and stressed on weeding out unproductive expenditure.

Delivering the memorial lecture, Dr. Subbarao said, “In charting a road map for fiscal consolidation, we need to be mindful of the quality of fiscal adjustment — which is to weed out unproductive expenditure and protect growth promoting expenditure,” he said.

Sharing his thoughts on subsidies in his address on ‘Rejigging the elephant dance: challenges to sustaining the India growth story', Dr. Subbarao said, “There are bad subsidies and there are good subsidies.''

“Bad subsidies like fuel subsidy, subsidy on LPG may be Rs.300 but every time you buy LPG you are getting subsidy to the extent of Rs.300. Not only you, Birla, Ambani, every time they buy a cylinder, they will also get subsidy,” he said.

“Then there is fertilizer subsidy...soil degradation happens because of fertilizer subsidy and thereafter irrigation subsidy,” he said.

Dr. Subbarao said there were good subsidies as well, like giving cycles to girls to come to school and constructing toilets for girls in schools located in villages.

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