Foreign Direct Investment (FDI) in retail is good for the country in the long run.
It will streamline the distribution mechanism, but it should ensure that small retailers are not affected, said C. Rangarajan, Chairman of the Prime Minister's Economic Advisory Council.
FDI has been permitted only in major metropolitan towns. Also nearly 30 per cent of goods should be sourced from small and medium enterprises.
“Sufficient precautions have been taken. I think the new retailers will be able to reduce the distribution margin and offer agricultural commodity, especially food, at a cheaper rate,” he told newspersons on the sidelines of the 14{+t}{+h} Polestar Awards organised by the Chennai-based Polaris Financial Technology.
On certain States voicing concern over the issue, Rangarajan said those States that feel strongly against it can opt out of it. There is an enabling provision, he said.
Financial regulation
Earlier speaking at the awards function, Rangarajan said that in the wake of the international financial crisis, a number of people were seeking regulation of the financial system. But too much of it can come in the way of innovation, which is badly needed for growth.
Policy makers need to strike an appropriate balance, which is needed to maintain stability, and innovation.
“This is a lesson that we are learning in the Indian financial system, and I think the basic conflict and dilemma is applicable all over,” he said.
Development has to be inclusive, lead to poverty reduction and it should be environment friendly.
“We need to incorporate all these aspects in the growth process but at the same time we cannot sacrifice growth, which is critical for improving the living standards of population,” he said.
There are two major sectors that need immediate attention – agriculture and infrastructure, particularly power. The last two-three years has shown how a small shortfall in agricultural production can cause serious distortions in the economy, he said.
The inflation for the last 24-36 months was due to the shortfall in agricultural production. “We need to focus attention on it to reduce poverty, ensure regional balance and food security. We need to ensure that annual agriculture production grows at four per cent. We need to see that the basket of goods that we produce in agriculture need to change according to the demand pattern,” he said.
In fact, at the end of 2010 and in early 2011, the high inflation was caused by a 65 per cent increase in the price of vegetables for three months in a row.
“What we need is an increase in agricultural production and also a change in composition of agriculture,” Rangarajan said.