Chennai: Government's decision to allow FDI in multi-brand retail would help increase productivity and ensure an efficient foodgrain distribution network to tackle high food prices, RBI Deputy Governor Subir Gokarn said in Chennai on Wednesday.

"The ultimate solution to high food prices is very simply more production of things that people consume more. You might debate the merits and demerits of FDI in (multi-brand) retail. But let's focus on the basic problem. We need to increase productivity and distribution efficiency", he said at a function.

Observing that India has a low productivity (of foodgrains) and inefficient distribution, he said increasing the scale of investments in organised retail is one way to increase productivity and distribution efficiency. "FDI is an enabler of that".

"Whether you accept the argument that FDI will do this or not, we have low productivity, we have inefficient distribution (mechanism)", he said at the 102nd AGM of Southern Indian Chamber of Commerce and Industry.

He called for solutions to take the country's economy towards a strong growth momentum.

"We have to look at the stress points. What are the stress points?. We have to look at the sources of imbalances in the macro-economic situation and we have to find solutions that will provide robust responses to these constraints", he said.

The Deputy Governor also pointed out that if food prices keep on increasing, it would impact wages and subsequently lead to inflationary pressures.

"It is also important to recognise that if food prices keep growing, that impacts wages, which impacts expectations and in turn feeds into the inflationary process", he said.

He said RBI has been trying to play a "balancing act" to maintain credibility and meet expectations of various stakeholders "without putting undue disproportionate pressure on the growth momentum."

(Agencies)

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