Kaushik Basu makes strong pitch for FDI in retail

A couple of ''big bang'' reforms like opening up multi-brand retail to foreign direct investment (FDI) would lift the mood of investors, Dr Kaushik Basu, chief adviser to the union finance ministry, said in Bangalore on Tuesday.

"I feel even a small reform like FDI in multi-brand retail will be a mood up-lifter, as it will benefit our farmers in a big way and even small producers will be able to export to global chain suppliers," Basu told reporters at a late evening function.

Basu said once global chains invest in the country, they open up channels for small producers to access overseas markets and farmers can become suppliers to them.

"Once these global chains come to India, you basically open up the markets to exports. We have seen this happening in China, Indonesia and other countries where the retail sector was opened up for multi-brand products and services," Basu said after delivering the 'fourth Raj Bhavan Dr V K R V Rao memorial lecture'.

He admitted that political support for opening up retail was lacking. "In a democracy, we have to take along all of them. I just hope it will happen soon as it is very unfair to hold it up," the top economist added.

Basu echoed these points in an interaction with The Hindu. ''Allowing foreign direct investment in multi-brand retail could lift the mood of investors even if the economy is showing signs of slowing down,'' he said. ''It may not be the last word on reforms, but an announcement like that can cause the mood to shift.''

Basu said that announcements like these could address ''negative investor sentiment,'' as opposed to specific policy instruments such as interest rate cuts, which could be used to address macroeconomic variables such as inflation or overall economic or industrial growth.

 ''Since a large part of the problem (of economic slowdown) is not because of the economic fundamentals but because of the negative mood, an announcement such as allowing FDI in retail could play a big role,'' he argued.