Two policy reforms for India’s inflation

Here is Inter-Ministerial Group’s (IMG) first paper on inflation. IMG on inflation (apart from several other committees like E-GOM, GOM etc) has been constituted in Feb-11. The first two meetings focused on food inflation and in particular to marketing and retail prices.

This paper says India needs to fix two things to ease food inflation – APMC reform and Allow Multi Product retail.

  • APMC: The well intended APMC law was created to protect farmers but has led to cartelization and collusion amidst traders. Time to get more competition and allow more players and private markets to come. Even new traders should be allowed in current APMC set-up as only few registered players are allowed.
  • Multi Product retail: This suggestion has been there for a while. The idea is this would lead to more competitions, get better prices from various suppliers and lead to lower inflation in the processs. Share of large retail is just 4% in India and 66% in Japan, China- 20%. Malaysia – 55% etc. Chinese experiences in retail have been favorable. It will also bring new technology and over a period of time lead to exports from India as well.

APMC reform is much needed and has been talked about recently…

Retail is basically a political case and political parties play the game. The ruling party favors it in its regime and then changes its views as it becomes opposition. One sees evidence of large retail in large cities for sure. There are much better deals in these places compared to small retailers. Even smaller retailers have improved operations and giving better services like home delivery and cleaner facilities. Have even become friendlier towards customers as well, the rude behavior has been replaced by smiling retailer.  Of course this change applies to retailers wanting to fight competition and remain in the business. Those who do not change, close shop and blame it on large retailer.

What I am not sure of it is large retailers and their success in smaller cities. They start with a bang but are unable to keep up and close down soon. I have seen them not being successful in even big cities like Agra. So we need to think on how we can reap benefits of large retail in smaller cities. How can people from smaller cities come to these places more often? It is ironical as people have more time in smaller cities and should be able to goto these places more often but do not and prefer their small retail shop.

But then first thing is to allow more large retail and do away with political games on the issue. We can impose certain conditions which make large retailers more responsible and work towards development of Indian retail sector.

 

Awaiting more papers on the same.

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