FDI in retail can help arrest inflation

Will this budget help increase consumption or will it increase inflation that will curb consumption. The jury is yet to be out.

Budget 2011-12 has been a statement of intent. It seems more like a “nut and bolt” budget. Though this may be a non-populist budget with the intention of consolidation by sticking to basics, execution of the stated intent would be the key.

Some of the welcome initiatives are bridging the demand-supply gap and wastage in agricultural produce by various methods including subsidies, credit flow and infrastructure creation and call to state governments to review and enforce a reformed Agriculture Produce Marketing Act.

However, the budget has been silent on FDI in retail. Opening up the retail sector for foreign direct investment could have positively influenced an efficient farm-to-fork system for the growing consuming mass. Many agriculture related reforms could have also resulted from this. The finance minister said that continued high food prices have been a major concern this year.

Encouraging modern retail would have helped arrest the current inflationary trend, directly impacting the consumers at large.
On the flip side, the FM has ensured that ‘kapda’ also does not come easy to the common man, who has already been paying high prices for ‘roti’ and ‘makaan’. The 10% excise duty introduced on branded garments will come as huge blow to the consumer.

This budget may not spell good news to the upwardly mobile middle class consumer to whom airfare, restaurant bills and hospital bills would cost more, as these have now been brought under the ambit of service tax.

Some concessions on income tax provided to individuals should help relax the sentiments of middle class India. This might help generate disposable income at the middle segment of consumers. However, this will not impact the majority of the population who are out of the tax net.

Affirmative statements on finalising the enactment of Direct Taxes Code during 2011-2012, proposed Constitution Amendment Bill as a step towards roll out of GST, are welcome.

A roadmap for bringing down the fiscal deficit is a welcome step. Fiscal deficit has been kept at 4.6% of GDP for 2011-12 and to be progressively reduced to 3.5% by 2013-14. The move to allow foreign investors in Sebi registered mutual funds is a big-ticket reform and would see an increase in foreign money coming to India.

The writer is CEO, Retailers Assocation of India