Thursday, March 18, 2010

"FDI" IN FOOD RETAIL-POSSIBLE ANSWER TO FOOD INFLATION?


Foreign investments in retail sector are not possible under the current FDI policy of the Indian government, the main reason being the fear that millions of small traders spread all over the country employing an enormous work force would be adversely affected by the financial muscle power of the large multinational retail giants like Walmart, TESCO etc. GOI may have some justification to take this line because unemployment is one of the most pressing problems country is facing to day if the employment exchange figures are to be believed. But how far the projected unemployment figures reflect the ground reality is another imponderable issue having no definitive answer but there is a strong suspicion that the numbers include a vast population of under employed persons also looking for better prospects in life.

A close look at the food retailing net work that delivers staples as well as perishables to the consumers in the country is based on the so called "middle men" so necessary to provide linkage between the producer and the retailer. More the number of such intermediaries sharper is the escalation in consumer price. In spite of the existence of Minimum Support Price (MSP) regime in many food produce, farmers are not better off than they were in the past, many of them driven to suicide unable to sustain their families. Money lending and muscle force make many farmers literally second class citizens in their own land. Economic subsidies and financial incentives provided year after year in central and state budgets do not seem to have made any dent in the rural poverty.

Food inflation is out of control and the unseemly blame game amongst the political class to pass on the "buck" is adding insult to injury to the citizens who are bruised by the erosion of the purchasing power of the rupee. The media statement that "Pawar snores while the food prices soar" reflects the ridiculous situation that exists in the country. Sugar prices have doubled in no time while millions of tons of imported sugar are piled up in different ports because of the cunning strategy of the hoarders to use GOI facility to starve the market. Same is true in practically every food commodity traded in the country with the hoarders having a vice-like grip on the supply chain. Poor local traders face the wrath of the consumer though he has practically no control over price fixing by the wholesale traders with deep pockets to hold the market to ransom through hoarding, some times under the benign eyes of the politicians at the helm of affairs in the country. Can this situation be allowed to continue for long? Sacrifice is necessary by all the stakeholders and if the present retail community slowly fades away yielding to a competitive organized retailing system, there is good possibility that food prices will come down.

Answerability and accountability are the hall marks of any good management system and that includes governmental activities also. Probably time has come to fix responsibility for the current situation and the Indian government is answerable to the consumer instead of dithering, vacillating and some times reigning over them like a colonial government. It is a shame for any government to admit openly that it does not have the wherewithal to control innumerable retailers who are peddling food. If the state governments are impotent to rein in the retailing business as it operates now, it is time they force GOI to welcome FDI at least in food retailing. This will enable billions of dollars of foreign funds, at present lying idle for want of attractive investment options, to be deployed efficiently to organize retailing on a scientific and modern management principles. A few organized retailers are much more amenable to discipline and monitoring than millions of scattered small traders.

National Dairy Development Board's success in fruit and vegetable marketing, though not dramatic, is mainly due to its organization capability linking producer to the consumer with profit motive made secondary. Similarly if ITC has been able to establish workable and mutually beneficial relationship with farm producers with good will, same can be achieved by foreign retailing industry, investing in India with their enormous organizational and managerial skills. There are a few shining examples of Indian grown retailers establishing backward linkages with producers and delivering prime produce of high quality at costs much less than that by the small traders, at least in some urban areas. Without standing on out-dated philosophy and irrelevant economic basis, GOI must evolve an equitable FDI policy in food retail that can attract "best of the best" from around the world to ensure fair competition in food retailing that will go a long way in providing affordable daily food items to the vast majority of Indian population currently handicapped by uncontrolled inflation. Whether the necessary political will is there remains to be seen under the present coalition government.

V.H.POTTY
http://vhpotty.blogspot.com/
http://foodtechupdates.blogspot.com

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