Whiff of hope
New Delhi, Sept. 16: The Congress-led government has made up its mind on not buckling under Mamata Banerjee’s pressure to roll back FDI in aviation or multi-brand retail.
However, top finance ministry officials said the government might look at the possibility of rolling back the Rs 5-a-litre hike in diesel prices announced on Thursday by 50 paise to Re 1.
A pointer to the possibility of a partial rollback is the little noticed demand made by Kerala’s Congress chief minister Oomen Chandy. But it can come as a face-saver for the Trinamul Congress as it can claim that the partial rollback is a result of its protests. On FDI in retail, Trinamul will maintain that it protected Bengal’s grocers by not approving the reform.
The original cabinet note prepared by the petroleum ministry had recommended two scenarios of price increase — a hike of Rs 4 and an increase of Rs 5 along with the corresponding subsidy burden.
A 50-paise rollback will involve a loss of Rs 2,100 crore for the rest of the year, while a Re 1 rollback will cost the government Rs 4,200 crore.
However, officials made it clear that the decision on FDI in retail was not negotiable. The move to allow foreign retailers such as Walmart, Carrefour and Tesco to pick up to a 51 per cent stake in large format stores comes nine months after an earlier decision was put on hold.
“A second back-tracking could lead to a crisis of confidence in the India story and make foreign and Indian investors extremely jittery,” officials pointed out.
Officials also expect some of the larger agrarian states and parties with strong farmer support to come out in support of FDI.
Studies have shown that direct purchase of farm produce by retail chains can help consumers save 5-20 per cent, while increasing the price recovery of farmers by about the same percentage.
The Congress government is also hoping that Mamata will drop her hardline stance over time.
Bengal is one of the biggest agricultural states. It is the largest producer of rice, vegetables, fish and pineapples and the second-largest producer of potatoes in India and accounts for about 10 per cent of the edible oil produced in the country.
However, potatoes often sell as low as Rs 2 a kg in the farm markets in the state, while at the retail level they are sold at over Rs 20 a kg in most metro cities and at Rs 10 a kg in Calcutta.
Farmers in Bengal as in other parts of the country can benefit from their huge surpluses if middlemen are eliminated from the supply chain and retailers buy directly.
Commerce ministry officials hope that states such as Bengal, Tamil Nadu and Uttar Pradesh will be forced to change tack on foreign retailers once they see the direct benefit to their large farmer communities.
The FDI in retail decision makes it mandatory for all foreign-controlled retailers to spend 50 per cent of their investment in building backroom infrastructure in rural areas such as cold storage and processing plants. This should act as an additional incentive for acceptance by the agrarian states.