FM Silent on Multi-Brand Retail FDI.

The budget speech of the finance minister intends to lay the foundation for policy changes that are to follow over the next 12-18 months. However, the speech was lacking in big-ticket reforms that the finance ministry has been promising for a while.

One of the biggest disappointments pertain to a silence on foreign direct investment in multi-brand retail albeit in a limited fashion. The green signal for FDI in multi-brand retail would have gone a long way in containing inflation, a major cause for concern of both consumers and the government. The government has been trying to control money supply to curtail inflation. Changes in the way goods move from farm to fork will, however, address soaring prices effectively. The need of the hour is to push modern retail that can take the lead in improvement and integration of the supply chain and, thus, bring down prices.

The budget announcement on incentives for setting up cold chains and new logistics/storage facilities is welcome. However, this is just a single step in the supply chain. To cover the entire value chain and deliver maximum efficiency in the supply chain, the government needs to urgently define a policy road map on investments in farming and front-end retail. The capital needs for setting up a modern supply chain from farm to fork are very large, and foreign retailers with deep pockets can meet these needs effectively.

It is this modern retail bolstered by FDI that can reduce wide fluctuations in prices that consumers have faced over the past 12 months. A small drop in productivity had lead to a many-fold price increase at the retail level.

Modern retail with its inherent advantages of possessing scale, the ability to plan effectively and the requisite infrastructure can contribute to controlling changes in prices that occur as the supply chain at present is in the hands of “opportunistic” traders.

Tax policies controlling the entire supply chain are controlled by state governments. Some states are guilty of allowing “trading borders within the state” as in Maharashtra where octroi distorts prices.

In the modern world, trading borders are being dismantled between countries, whereas in India we have to deal with “city-level” trading borders that in turn increase costs and reduce the freedom to move goods. Seamless tax-free movement of goods across the country can ensure lower prices.

Another aspect introduced in this budget that can act as a dampener is the imposition of an excise duty on branded garments at a time raw material costs have more than doubled. This will hit growth of the textiles and garment businesses in the country.

Source : telegraphindia.com