The Inter-Ministerial Group (IMG) on Inflation headed by Chief Economic Advisor Kaushik Basu on Friday pitched for opening up multi-brand retail to foreign direct investment (FDI) along with changes in agriculture marketing laws to help contain the inflationary pressures on the economy.
Addressing a press conference here, Dr. Basu said that based on its deliberations pertaining to food article inflation and macro-economic demand management, the IMG's recommendation is that the government should consider reforms in the APMC (Agricultural Produce Markets Committee) Act and in the multi-product retail sector as the two important steps to cut down the margin between farm gate and retail prices.
“We are taking a clear position on FDI in multi-brand retail. Of course, it is a recommendation, not policy …There is a need to revise the AMPC [Agricultural Produce Marketing Committee] Act to reduce the price gap between farm gate and consumer prices. We need a model act to be adopted by States.”
Increase in food prices
Concerned over the runaway increase in food prices, Prime Minister Manmohan Singh had directed the setting up of the IMG in January this year with a mandate to look at the whole range of inflation policy issues, from distribution of foodgrains and vegetables to macro policies connected to fiscal and monetary matters and suggest ways and means of containing the price spiral.
Arguing its case for the two reforms, the IMG pointed out that correcting the margin between the price that farmers get and the price that consumers pay is not going to solve the problem of inflation for all times to come, but it can have a sharp desirable effect in the short run of bringing inflation down in food and increase the efficiency of our food markets. This, it said, can be of great value to both the farmers as well as consumers.
Towards this end, the IMG said that the APMC Act ought to be amended so as to enable farmers to bring their products to retail outlets and also allow retailers to directly purchase from the farmers, without facing blockades by incumbent traders. “The APMC system has abetted monopolistic behaviour and reduced the choices available to small farmers. Unwittingly, the well intentioned APMC law has contributed to helping cartelisation and collusion amongst incumbent traders. The need, therefore, is to re- visit the APMC Act with this in mind,” it said.
The high-powered group has recommended that since there is a model APMC Act from 2003 which has not yet been implemented, the government should review and revise the model Act — keeping in mind the need to keep inflationary pressures down — which could be adopted by the States to remove supply bottlenecks at the local level.
On its recommendation for reform in multi-product retail by way of allowing FDI in this sector, the IMG said that the government should consider such liberalisation at the earliest as “India's retail sector continues to be primitive and there is evidence that there are large losses that occur as products pass through the supply chain from farm to the retail customer.” It argued that because of dated technology and managerial methods used to move products from one part to another there is value erosion that occurs all the way which, in turn, raises the price that consumers have to pay. “Reform in this sector can be an effective inflation busting measure,” it said.
