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Foreign direct investment in multi-brand retail will help increase productivity and ensure an efficient distribution network, which in turn will check rising food prices, said Subir Gokarn, Deputy Governor, Reserve Bank of India.
Talking about food inflation, he said, “We have an inefficient distribution system in the country.” Increasing productivity and making the distribution system very efficient will go a long way in checking inflation. He was speaking to the media after addressing the 102{+n}{+d} Annual General Meeting of the Southern India Chamber of Commerce and Industry here on Wednesday.
Pointing out that agricultural productivity in India has remained stagnant for long, he said persistent imbalances in demand-supply have resulted in this very strong and structural inflationary pressure. .
Ensuring flow of investment in the organised retail sector is the key as it can help increase productivity and distribution efficiency.
“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,” he reiterated.
In his address to the Chamber, he said it is high time that food inflation was checked. If not, it would impact wages, expectations, and in turn feed the inflationary process, he said. Talking about growth versus taming inflation, he said if inflation is not tamed at this juncture, it might get out of control. To tame inflation, one has to pay a price in the short-term; but in the long-term it will only promote growth. He cited Brazil’s story, pointing out how when the inflation grew in three-digits, it took decades for the country to bring it down.
Balancing act
Going by the first quarter numbers, Gokarn said the current account deficit has “kind of stabilised,” and the liquidity position is also comfortable. It is the right time that “we should start focusing on growth”. The RBI has been trying to play a balancing act to maintain credibility and meet expectations of various stakeholders without putting any undue pressure on the growth momentum, hesaid.
On the fiscal problem, he said no solution will work unless the subsidy issue is addressed. “The subsidy bill is by far the largest single burden on government finances.”
>ravikumar.ramanujam@thehindu.co.in
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