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FDI in multi-brand retail to spice up the food chain

Jan 01 2013, 01:36 IST
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SummaryThe farm sector grew at a dismal 1.2 per cent in the second quarter of the fiscal as poor rains impacted crops.

Food inflation has remained well over 6 per cent over the past one year, partly contributing to the stickiness in headline inflation that has remained above 7 per cent and prevented the RBI from cutting policy rates to spur growth. Though concerned about high food prices, largely a result of a demand-supply mismatch and to some extent a result of intermediaries between the farm gate and the retail level, the government is yet to take definitive steps, apart from permitting 51 per cent FDI in multi-brand retail.

Agriculture

The farm sector grew at a dismal 1.2 per cent in the second quarter of the fiscal as poor rains impacted crops. But experts have time and again warned that boosting agriculture productivity to at least 4 per cent annually is essential to increase supply of not only essential food grains but also proteins, fruits and vegetables. States must relax the stringent Agricultural Produce Marketing Control Act to ensure that farmers are able to get better prices and have an incentive to produce more. While many states have already initiated this, others need to follow suit with international retail chains set to enter the country.

A key suggestion of the Prime Minister’s Economic Advisory Council to extend contract farming, currently used for sugar and milk, to more commodities. Investments are needed to set up an extensive network of cold chains and warehousing facilities for perishable agriculture produce.

Retail

Defying Opposition and allies alike, the UPA managed to finally permit up to 51 per cent FDI in multi-brand retail in September this year and also got Parliamentary backing after a motion to withdraw the move was defeated. In the interim, it also diluted norms for FDI in single brand retail, paving the way for Swedish furniture maker Ikea to open 25 stores in India.

The government’s key argument for allowing foreign retailers to set up shop in the country is that it will benefit farmers and consumers alike and help improve farm productivity. But officials with the Foreign Investment Promotion Board say though global multi brand retail chains have begun to make inquiries on the investment norms, no concrete proposals have yet come up. If any foreign retailer does come to India in 2013, it could well prove to be a landmark development, giving some valuable lessons for those preferring to wait and watch.

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