While the Indian national spectrum allows for a surprising amount of political heterodoxy, with ideologies spanning temple construction, Gandhi-family installation, statue benediction, Bhaiyya defenestration, policy-paralysis-induction, and even more policy-paralysis-induction, there is an almost equally emphatic monochromaticity in economic thought among the political class. In that, there is not a single party of any note that consistently stands for free-markets and limited government. I am not saying, for a second, that what is roughly characterized as libertarian-ism is the solution to India’s economic malaise (far from it if I may add) but some sort of economic diversity in the stated policies of our political masters would bring a countervailing force to the overwhelming preponderance of the big-government protectionist socialism that all parties espouse.
The Swatantra Party tried, a long time ago, to bring a bit of an exotic flavor to the Indian polity, by attempting to infuse concepts like free enterprise into the socio-economic lexicon. They failed. Quite miserably.
The lesson was learnt. In India, the common people have a very definite anthropomorphism of an ideal government.
Namely, the male head of an undivided Hindu joint family.
He sits on a swinging recliner, hookah in hand, as every earning member hands over a significant portion of their salary to him. “I will administer the common pool of money in a way that will benefit you all”, he says, “and I will protect you. Let none be left behind”. The family members crib and carp about the patriarch’s profligacy and incompetence, recount incidents of how he never ever really backs them up in times of trouble. And yet come beginning of every month, they once again pull out the cash and hand it over to him, eyes downcast.
How does this go on for years on end without any change? Well for a start, the patriarch always acts benevolent—-he buys the bahu a sari on occasions or gives munna a toy train from time to time. “We got something back”, they think, all fuzzy and warm, “something that could have gone to the middle brother’s family otherwise”. Even more importantly, the patriarch goes heavy on the compassionate rhetoric in a very Alok Nathian way, ready to weep and emote and hug close to chest, even as he is almost always powerless to do something of any importance.
Perhaps this line from Phir Bhi Dil Hai Hindustani captures the expectations from the government best— “Humme pyar chahiye aur kuch paise bhi, Hum aise bhi hain, hum hain waise bhi”.
First the paisa. In terms of entitlements and handouts, all couched in a blanket of compassion. Rs 2/Kg rice. Laptop to maulvis. Subsidies on cooking gas and oil. “What gifts is the Finance Minister bearing for the housewife?” asks the papers, just before the Budget, as if he is a genial Santa Claus coming down the chimney with bagful of goodies. In short, as long as we believe we are getting “something for nothing”, we are happy.
Then the pyar. The government “cares”. It is the knight in shining armor which stands between the citizenry and the forces of the “market” (and no I am not referring to the Manisha Koirala starrer “Market”) , picturized as a gigantic black serpent with multiple heads—the imperialist, the Walmart, the East India Company, the foreigner, an agent of such evil that if left unmolested would poison the milk of your infant, leave you jobless and snatch away every last bit of what you own. Which is why the government is needed, with its magical shield of red-tape and sword of regulations and market-fighting exercises like the Budget wherein it seeks to control the beast by slashing excise duty on kumkum while increasing it on agarbatti and rolled bidis.
The political class is only too happy of course with the power vested in it. It suits them just fine. Which is why they never want to reduce the size of government or of its role (they do fight over whether it is the Center or the State that should be doing more of the governance).
And why should they?
Resources flow in the form of direct and indirect taxes. A portion of this is then mooched off by a bloated bureaucracy and similarly bloated political administration as over-head (the cost of President Tai’s foreign trips for example or the long entourage that accompanies every minister), another portion is used to maintain boondoggles like Air India whose principal reason for existence is to be the free luxury carrier for IAS and ministers and their families. Yet another portion goes to fund entitlement schemes and subsidies, most of them designed to maximally benefit political pressure groups.Whatever little is left over, well yes, that then goes for funding what the government ought to be doing—building and maintaining common infrastructure (roads, highways, schools, defense etc). Almost as an afterthought.
Whenever any player in the political game, and remember this player is almost always doing this out of compulsion, tries to change the extant culture and attempts to unfetter the markets from regulations, there is a concerted push-back from across the political spectrum.
In order to get the public approbation for maintaining the status-quo, two archetypes are sought to be created.
One is the focus of compassion, the Rakhee of Baazigar, holding to herself two fatherless offspring. The other is the all-powerful villain, the predator, the Madan Chopra, who wants to not only take away everything the hapless widow owns but also wants to see her take a shower. Once the conflict has been framed in such a simplistic black-and-white manner, the end-game lies simply in appealing to the sentimental “Ma Mati Manush” core of the country, and more often than not, the original mover of “reform” panics at the groundswell of opposition and the river keeps flowing as it always has.
This time too, we see the same hoary “anti-market” story template being re-used for “FDI in retail”, as predictable as a Madhur Bhandarkar movie. The object of compassion is the “kirana” shop-owner and Madan Chopra is “foreign investment” and his accompanying “deep pockets” and “efficiency in procuring and transporting goods”. The moment he is allowed in through the door, “kirana shops will go out of business because Walmart will do in India exactly what it did in the US” (this usually followed by a copy-and-paste from an anti-Walmart site) and finally, horror of horrors, “the market will be flooded with Chinese goods.” (the last to be said with great outrage, similar to how they say in “Clerk”, “Doctor ne feees maangi hai”).
This narrative is of course a lot of Ravinder Jadeja. As I had pointed out in a post about a year ago, the concept of a “foreign” company, in today’s integrated global economy where parts, labor and capital are sourced from different parts of the globe, makes no sense. (“Corporations do not have countries, they, like JLo, have only bottom lines”). Second, not all foreign companies are Walmart and using the classical Walmart business model as a dart-board for FDI in retail is disingenuous. Assuming though that all foreign investment in retail is Walmart, there is the assumption that Walmart’s business model can be applied as is Indian markets with the same effect on local business that makes Walmart such a bogeyman. Not to speak of the other assumption, namely that Indian-owned retail chains cannot adopt Walmart’s business model themselves (they have a better chance of doing it than Walmart, at least initially), once again assuming it is a silver bullet for all types of markets. (Again I have elaborated on this in that old post). Or that Indian-owned retail chains would not sell “cheap Chinese goods” because being desi, they are somehow more socially committed or patriotic. [Please read the old post for a greater elaboration of these ideas]
The thing is that with markets, no one knows what may happen. Will kirana shops be totally wiped out as retail chains step up their activities? I doubt that will happen, the ones who are able to best leverage local conditions and markets will survive and flourish. What I do know, because it is common sense, is that increased competition will help consumers and prices will go down. Some say that procurement prices for farmers will go up but then, as this article says, it won’t be as big a blessing as being touted. Why? Read the reason.
While he welcomes the government’ s plans on foreign retailers, Mr. Jakhar said the policy change will only result in a small benefit to most farmers. In most Indian states Walmart and other stores will be required to buy produce through a monopolistic distribution system that compensates farmers poorly for their produce while benefiting a vast array of middlemen.
“It’s a blessing but it’s not a big blessing,” he said. As an organization we have been saying these large corporations have to purchase directly from us. If they go through the middlemen, it won’t make a difference.
The crux of the problem lies in the agricultural marketing laws of most Indian states that forbid retailers from buying directly from farmers without going through designated wholesale markets or paying a tax to those markets, according to Mr. Jakhar and other agricultural experts I have spoken to in the past. While the national government has been asking states to amend those laws to allow for direct purchase of produce from farms, most have not done so because the traders who control the wholesale markets have significant political clout, they are also a big constituency of the opposition Bharatiya Janata Party, which opposes allowing foreign retailers into India
The problem, if you note, is not capitalist Bob Christo gone amok. On the contrary, the problem stems from regulations that have been put in place inhibiting the free buying and selling of goods, enforcing a monopoly by official fiat ostensibly to protect a powerful voting constituency. The patriarch government, once again, to the rescue. Not.
Will all kirana shops survive? If prices do go down, some will not.
So what should the government do in this particular case? Nothing. ( I mention in this case because some regulations I believe are necessary and what those are I shall leave for another day. However they should be nowhere close to what we have in India today)
What can the people do?
If you feel compassionate towards kirana shops, do keep buying at a premium. There are many people (not a whole lot though) in the US that refuse to buy at Walmart, drink coffee from Starbucks on principle and invest in only socially conscious companies. Nothing prevents you from manipulating the market by regulating your own demand. Set an example. Compassion, like charity, begins at home.
But we know you won’t do it. You will go to the place where prices are the lowest. Why? Because you are a human being. It’s the same reason why, despite having shaken your head in sympathy, you never stopped using MS Word just so that typists would not lose their livelihood (I remember long lines of typists sitting in Gariahat, busy all through the day, who have now all vanished since no one comes to them for typing official letters, resumes and theses). It’s the same reason why you never stop to think what happened to travel agents in these days of direct online purchase of air tickets from airlines and easy online comparison shopping (Again some travel agents survive, many do not.)
Nature is governed by Darwinism, or the survival of the fittest, and when government tries to step in and egregiously alter the natural scheme of things, things go south. If our compassionate society had fallen for the Left’s party line of “Computerization would lead to apocalyptic lay-offs in every sector of the economy and lead to Uncle Sam controlling India through software” (which was a very very popular and emotive argument decades ago), then, well we know what would we have missed then.
If there is anything that captures perfectly the schizophrenic craziness of our national discourse, it is how at the same time, there is both opposition to the government withdrawing subsidies for LPG (“It will increase prices”) as well as to FDI in retail, even though that will, in all likelihood, bring down prices.
Because, we feel that subsidies are our right (“Don’t we pay taxes? Don’t we deserve some money back?If we don’t get our money back, someone else will take it.) but the operation of a free market, without overt (intentionally italicized for emphasis) government restrictions , is not.
And that’s sad.