The recommendation to permit foreign direct investment in multi-product retail trade by the inter-ministerial group (IMG) headed by the Prime Minister’s economic adviser, Kaushik Basu, has sent ripples through economic and political circles.

This is said to be the first time that such an official recommendation has been made though discussions on this highly emotive issue have been on for at least 10 years. The underlying objective of this recommendation is laudable as it is expected to bring down inflation as it will close the “yawning gap” between the price that the farmer gets and what the consumer pays. This is, of course, apart from the advantages of creating an organised retail sector and bringing in marketing and distribution technologies. It will eliminate some wastage in storage, which today is estimated at Rs 50,000 crores. But whether it will bring down food inflation is debatable because the global reality is different. Wal-Mart, Tesco, Carrefour, Metro and others are all over the US and Europe and every one of those places is reeling from huge food inflation. What’s more, all these governments subsidise their farmers heavily since agriculture is not remunerative. Therefore the Basu IMG’s argument about bringing down prices and curbing food inflation defies logic and reality. The group was set up by the Prime Minister to suggest ways to tackle high food inflation.
The Basu IMG is right when it says there is a yawning gap between the farm gate and retail prices of agriculture products. This is because the trader takes in his urban marketing costs. In Europe, for instance, there is a continuing discussion on why there is a vast difference between the price of wheat and the price of bread. The Wal-Marts of the world have not succeeded in bridging this yawning gap. And what about the burgeoning cost of education, healthcare, transportation, etc, all of which affect farmers who are not able to include these expenses in the cost of their agricultural produce as urban producers do.
On the other hand, permitting FDI in this sector will bring more money into India and the revenue the government earns by taxing these giant retailers could be ploughed back into agriculture and social sector spending.
The Basu IMG has also recommended modernisation of the Agricultural Produce Marketing Committee to bring the farmer and consumer together. Former Andhra Pradesh chief minister Chandrababu Naidu had tried the system of a farmers’ bazaar, but it never took off.
These are recommendations, as Mr Basu has said, and will have to go before the government, and then the Cabinet committee.
The issue boils down to farmers not getting remunerative prices. If a farmer gets remunerative prices s/he can improve yields. The government has since 2006 got five reports from the National Commission on Farmers headed by Prof. M.S. Swaminathan. It has accepted its recommendations. But the report is gathering dust. Unfortunately, the IMG was packed with bureaucrats and their recommendations have no out-of-the-box thinking. No farmers were on this committee. If the government is serious about tackling food inflation, all the more imperative now in view of the pending Food Security Bill, it should get down to implementing the very comprehensive recommendations of the Swaminathan Commission.