"The neo-rich need shining mega marts not shabby retail shops. They are not bothered about what happens to the rest of the population."

India has a vast and, at the same time, rapidly growing market due to increasing population, rising per capita income and growing urbanization. According to a reliable estimate, it is worth $330 billion, growing at an average rate of 10 per cent per annum since the turn of the present century. It is being contended by certain circles inside and outside the country that this market is “underserved” and “among the most fragmented in the world; the combined market share of the top five retailers totals less than 2 per cent.” Thus there is great scope for foreign direct investment (FDI) to enter it and serve the fast expanding middle class with plenty of money to spend. As the forecasts go, India’s population of more than one billion at present is likely to overtake China’s by 2050. Notwithstanding the fact that more than 30 per cent of the population is below the poverty line, the size, purchasing power and mobility of the middle and upper classes have been increasing rapidly. These, along with the rising pace of urbanization, have been fast expanding the retail market. Lastly, the recent change in the law has created favorable conditions for the FDI. Earlier, no foreign investor was allowed to enter retail sector, though he could operate through franchises. As the news goes, the UPA government is ready to change the law to facilitate the entry of FDI into retail trade, at least to 26 per cent of the total equity of a firm. Maybe, it will be increased up to 49 per cent after a while.

This is sure to gladden the hearts of Western retailers. A. T. Kearney, a leading American consultancy firm, wants them to “be quick to take advantage of these more favorable FDI rules. Wal-Mart, Carrefour, Tesco and Casino are among those actively seeking local partners. Foreign retailers currently operating through franchises, such as Marks and Spencer, and the Bretton Group, will most likely switch over to a hybrid model. Levi is already taking advantage of shifting demographics and growing interest in branded products, and has laid out plants to build 300 stores in India by 2008. At the same time, leading domestic retailers, such as Pantaloon, Westside, and Big Bazaar are ramping up their business by increasing their scale and enhancing their logistics and technology processes.”

Looking back, one finds that the issue of FDI in the retail sector has been holding fire for more than a decade. It was in the year 1993 that Dr. Manmohan Singh as finance minister in the Narasimha Rao government changed the law to facilitate the entry of FDI into the retail trade. Dairy Farm, an MNC, was among the first to enter the country’s retail sector. This change was, however, reversed by the Dave Gowda government’s finance minister P. Chidambaram. It was argued that the reversal was due to pressure from the Left. In practice, it did not mean a big change as foreign retailers, by taking advantage of the legal loopholes, came in through franchises.

Once again both the protagonists and the opponents of FDI in retail trade are face to face. The Left is supporting the government that is headed by Dr. Manmohan Singh while P. Chidambaram is finance minister. Both Dr. Manmohan Singh and Mr. Chidambaram are for FDI in retail trade. Yet, the Left is not ready to dilute its stand. In fact, while sustaining the government in power the Left has been opposing its economic policies including that concerning FDI, and in this process it has kept the reactionary forces, led by the BJP out of power and, at the same time, got certain changes made in the economic policies.

The arguments of the proponents give primacy to the interests of the fast expanding middle and upper classes who aspire to ape American living standards and believe in the dictum: “go on shopping till you fall dead.” The neo-rich need shining mega marts not shabby retail shops. They are not bothered about what happens to the rest of the population.

The Left’s main contention is that the entry of FDI into the retail trade will have harmful consequences for the already bad employment situation in the country. At present, 98 per cent of retail trade is in the unorganized sector. It employs 7 per cent of the work force, which in absolute terms comes to 42 million. Most of the retail stores are small ones owned by the families of those who have been running them. They have been engaged in running them for generations and they know the localities and their inhabitants where they operate. They are also familiar with the likes and dislikes of their customers. They are knowledgeable about the festivals and celebrations and the requirements of their customers on those occasions. Besides, they extend the facility of credit. No protagonist of FDI in the retail sector denies that it will render a large number of existing workers in retail shops unemployed. Even Thomas L. Friedman in his latest book The World is Flat admits it. The contention that in the long run more employment opportunities will be created is not relevant to India in the present situation. Even if we accept that in the long run the employment situation is going to be far better, one must not forget What Keynes said: In the long run we all will be dead.

It is not beyond dispute that in the long run the total volume of employment opportunities will be much more than the employment opportunities lost in the short run by the entry of FDI and the efforts to build mega marts and modernization efforts. There are two points to be noted in this connection. First, FDI will come here to make more profits because the wage rates are much lower as compared to Western countries. Efforts will be made to eliminate all sorts of distributors by taking the goods directly from the producers. Also, mechanical and electronic devices will be used to dispense with the workers. Whatever workers remain will be made to handle more goods per worker. All these changes will lead to a big reduction in the number of workers in the retail trade. Second, most of the people engaged in the retail sector at present are not educationally very qualified. When they are rendered unemployed by forcibly having to down their shops’ shutters, they will not be absorbed anywhere else. FDI coming into the retail trade will require workers with modern skills in electronics and management. Hence it is wrong to say that human sufferings will be inconsequential.

Since the mega marts will be oriented primarily towards serving the newly emerging middle and upper classes, the composition of goods will reflect this orientation. Consequently, the pattern of production will show a bias towards them. The needs of the poor will be neglected. The poor and downtrodden will feel betrayed because the UPA in its Common Minimum Programme promised “to enhance the welfare and well-being of… workers, particularly those in the unorganized sector and assure a secure future for their families in every respect.” Once this feeling of betrayal sinks into society, it will lead to disastrous consequences for the country as well as its present rulers because everyone in this country has a vote and with this people express their rejection of the rulers and their policies. One needs to investigate whether the defeat of the Narasimha Rao-led Congress was due to the Ayodhya incident and the rejection of the BJP-led NDA was solely due to the Gujarat massacre or Washington consensus-inspired economic reforms and their consequences also had a role in both the defeats.

Dr.Girish Mishra has written extensively for all leading Indian dailies and periodicals including The Times Of India, Hindu, Indian Express and Dainik Jagran. He has, in the past, also written for The People's Press. He has written a formidable list of books on topics related to Economy and Economic History. He lives in New Delhi, India. More of his articles can be viewed at www.girishmishra.com.