In order to effectively deal with food inflation, Finance Minister Pranab Mukherjee on Wednesday asked the states to encourage organised sector in supply management pending a decision on allowing foreign direct investment (FDI) in multi-brand retail.

"There are no policy impediments for the presence of organised retail in food and other items of daily consumption that have exhibited inflationary spikes in the past several months

"Even as we build a consensus on FDI in multi-brand retail, it is important for the State governments to encourage the presence of organised sector in strengthening the food supply chain. There is ample space for the organised sector to co-exist with the family retail shops," Mukherjee said.

He was speaking at the workshop on agriculture, a path-breaking initiative by President Pratibha Patil. Besides Patil, the workshop was attended by over 20 governors, eight union ministers and five chief ministers.

Mukherjee said that efforts are needed to make the farm the sector more competitive and sustainable to support the growing needs of a rapidly-expanding Indian economy.

Food inflation remained a major problem for the Indian economy during most of 2010 and 2011 with the rate of price rise of kitchen staples remaining in double-digit for most of the period.

According to a background paper for the workshop, "leveraging foreign direct investment (FDI) in multi-brand retail could be one way of addressing the issues related to wide gap between farm gate and consumer prices.

Mukherjee said that with the impending implementation of National Food Security Act, covering the priority and general households, the level of production and procurement of foodgrains will have to be increased.