Edited excerpts of an interview with Kaushik Basu, chief economic advisor to the Union government, on CNBC TV18’s India Tonight programme. Basu talks to Karan Thapar on why the retail sector should be opened to entry and investment from abroad:
Last week, you said two things were needed to cut the margin between farm gate prices and retail prices — reform of the Agriculture Produce Marketing Committee Act and reform in the multi-product retail sector.
This is the position taken by the Inter-Ministerial Group on inflation, which I chair.
Do you believe the cabinet will accept your recommendations?
I hope they will. In this case, I feel if we go out there and explain to people what this kind of reform can do to the economy, I feel there will be a large number of Indians who will like what is being proposed. The benefits can be enormous.
Is it that 30, 40 per cent of Indian agricultural produce is wasted and, second, the farmer only realises a third of the price the consumer pays?
Those figures are correct. In well-functioning economies, farmers should get 66 per cent of what the retail people are paying.
So, what the farmer gets can be doubled?
Yes; presumably, we will lower a little bit the price consumers pay and raise the price farmers get. So, there will be some benefit sharing. China opened this sector in 1992. Over the next nine years, this sector’s employment in China grew by 26 million.
Business Line says if foreign retailers were to come and control 20 per cent of the Indian retail market, you could lose eight million jobs.
Let’s go with this pessimistic scenario, eight million traditional jobs lost. With 26 million additional jobs, these people can be pulled into new kinds of jobs and that’s the whole thing about dynamism in an economy. The gains will be huge and outstrip the losses.
We are growing at eight per cent yearly, and a change like this can boost our growth rate by, say, another 25-basis points. Yes, some kiraana shops will not be able to price as freely as they could do earlier, but that is what controlling inflation is about. You don’t want to give sellers who had the freedom during the oil, during the onion price crisis, to raise prices through the roof.
Also, for every extra one per cent growth in the economy, employment will increase by a million. This will mean more demand for food, for a variety of products, so space gets created for the kiraana shops.
Isn’t there a danger that foreign retailers, because of their size, can indulge in predatory pricing, pushing down prices to win a near-monopoly and then ramp these up?
Our report addressed that. What any well functioning market needs is a regulatory set-up, including competition laws. We are prescribing sufficiently, so that there is room for the kiraana stores to come up in these huge spaces between two big ones.
Will you impose regulation requiring priority investment in backward linkages, requiring them to set up cold storages or supply chains to secure farm produce?
I may place some such restriction but then again, at times we have a propensity to place so many restrictions that in the end, it’s not attractive for anyone to come into the sector. You want to put restrictions but still leave room for them to willingly want to come.
What about the proposal that foreign retailers be required to reserve half their jobs for what were called rural youth?
My instinct would be to give them free play but these details will have to be worked out. Another thing is our competition laws. You have to ensure these enable new firms to come in and operate... India has decent competition laws but we don’t enforce these too well.