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Sunday, November 27, 2011

BJP risks losing urban support


By Swapan Dasgupta

Economic reforms in India are usually achieved at gunpoint. It was the horrible balance of payments crisis and the emotional effects of the mortgaging of the country’s gold reserves that facilitated the historic process of deregulation by the Narasimha Rao Government in 1991. Seven years later, it was the wave of global sanctions after the Pokhran-II blasts that propelled the Atal Bihari Vajpayee Government into using reforms as a weapon to neutralise the West’s hostility to India.

The qualified opening up of the retail sector to foreign investment announced last Thursday is the only step in the direction of economic liberalisation that the UPA Government has taken since it assumed power in 2004. It is being said that the retail initiative will be the precursor of reforms in civil aviation and, perhaps, insurance.

For the Prime Minister, the retail initiative may have salvaged his jaded image in the outside world as a reformer. But while this may have played some role in encouraging him to overrule Cabinet and Opposition objections, it was not the clincher. What tilted the scales in favour of a politically high-risk initiative was the rapid depreciation of the Rupee, soaring inflation and the dismal state of public finances. In other words, the opening up of the retail sector wasn’t occasioned by a deep rooted conviction that the present protectionist regime was inefficient and served neither the farmer nor the consumer. Had the  realisation—as Commerce Minister Anand Sharma put it—that under the present system “the famer bleeds and the consumer is fleeced” been widespread, the Indian politician would have rushed in with reforms much, much earlier. The Congress, after all, has very little support base in the wholesale and retail sectors. The Akali Dal is essentially a party of Sikh farmers and its endorsement of the reforms is revealing. It suggests that the agricultural sector wants greater choice in determining who buys farm produce.

The present system was allowed to continue for 20 years after the liberalisation process was initiated because successive governments chose the line of resistance and allowed themselves to be intimidated by traders. The traders’ veto on reforms would have continued had the government not been forced to make changes. The consumers should thank the Eurozone crisis and the UPA’s profligate expenditure policy that the monthly grocery bills should register a decline in the medium and long term.

In the short term however, the Government still has a problem on its hands. There are projections that the retail sector should see nearly Rs 1,75,000 crore additional investments (some Rs 70,000 crore in foreign investments) in the next five years. Yet, it is going to be a slow process. For the moment, the UPA faces a situation whereby the possible losers are incensed by the changes but the beneficiaries aren’t terribly excited—because the gains will take a long time to be felt.

In political terms, this is dangerous. It is estimated that nearly a lakh of people per Lok Sabha constituency will see themselves as an aggrieved community. The petty retailers and their families are almost certain to be receptive to the populist rhetoric against foreign companies and the demonology that is building up around Walmart. The doomsday scenario may well be terribly exaggerated since urban clusters with populations below 10 lakhs will retain their protected status for the foreseeable future. Yet, a grievance is a grievance and with this retail reform the Congress has replenished the numbers of the burgeoning anti-Congress vote bank.

They may, however, be compensatory advantages for the ruling party. Economic reforms have traditionally won the support of the urban middle classes—a group that swung to the Congress in sufficient numbers to decimate the BJP in urban seats in 2009. Despite being a natural supporter of deregulation and the free market, the BJP has, since its defeat in 2004, adopted a cussed approach to economic reforms. This has led to a growing middle class indifference to a party it supported quite enthusiastically in the 1990s. In fact, like the Reagan Democrats, the 2009 election saw the emergence of the Manmohan BJP voters—people who broke away from traditional support to the BJP and endorsed a pro-reforms Congress.

In actively championing the cause of the vyapari mandals in the big cities, the BJP has to be careful of two things. First, it must convince its supporters that it is not a status-quoist party wedded to serving particular lobbies. Secondly, it must be careful that the anti-foreign and, by implication, anti-West imagery of the protests it plans on December 1 and thereafter does not end up creating a cultural mismatch between the below-35 generation and the ageing leadership of the party.

One of the features of contemporary India is that the below-35s, who will soon make up nearly half the voting population, combine fierce patriotic with an approval of westernisation and western lifestyles. In overdoing the anti-Walmart rhetoric, as Uma Bharti did last Friday when she threatened arson against the multinational if it set up shop in India, the BJP risks imposing a new cultural barrier for itself.

In 2009, the BJP ceded the modernity plank to the Congress with its hyper opposition to the Indo-US nuclear accord. It has to take care that in opposing the government, it doesn’t paint itself as a party of the Flat Earth movement. 


Sunday Pioneer, November 27, 2011

23 comments:

Inquiring Mind said...

Mr. Swapan,

What is your eligibility to write this article on Retail Sector and the government policy. Its better you people keep up your utopian morality and advice to the political class alone.

The indian economy has been functioning in the traditional way without any crutches. and you people, want that to be destroyed and opened to foreign companies, and call it as reform. For whom?? To cater to the luxurious needs of the urban middle class, and your article, is titled in the same way.

Are urban middle class, the only recognized people of india, while all others are just animals?

Are the 5 crore small traders a non-entity?

Today, with information awareness, the rural sector has been becoming more politically conscious, and intellectuals like you cannot blackmail political parties by showing the urban vote bank any more.

Its time for you people to sit back and think, bcoz, a person like me from the remote corner of india is able to question your stand..

jay j acharya said...

Dada, as usual a brilliant take on the matter! As some one who has left of the right political views, like your take on the subject!

Anonymous said...

I will not vote for the BJP if it opposes FDI in retail. How different are they from the Mamtas and the Mayawatis today? Populism is their new ideology

Eagleeye47 said...

Balanced & specific... a good timely piece.

srbuzz said...

I have a different take ... I think the point here is not whether investments should come for retail - but the autocratic manner in which it is done. And the upa regime has done nothing to inspire people into believing that they have India's progress at heart when they take a decision in such a fashion. The objection is to the fact that - currently most of us believe that the UPA should NOT be governing at all - so all decisions are suspect. What if they do the same with Food security & CVB. They've already devastated the nation with inflation thru fiscal irresponsibility - specifically NREGA.

Anonymous said...

Sir, just to correct you, it was PV Narsimha Rao government in 1991 & he was the true architect of Indian liberalization as far as i know. Dr MMS was just roped in to implement his policies.

Manoj Agarwal said...

Dear Swapan da,

Following are the two scientific papers I have found as the first 2 results of my random search on 'Walmart and its social impact on local community' on Google. Papers are few years old and hopefully not written with Indian context in mind. Both these papers are highly critical of Walmart's presence and conclude that the poverty level have increased in the counties in 1990s (boom decade) where Walmart increased its presence. Another article concludes for every job created at Walmart, 1.4 jobs were lost in the local market. That was the situation in West. The impact in Indian market may be more adverse due to its "inherent inefficiency". Herein lies the difference between Big Indian Players vs. FDI in organized retail. I'm not aware of the author's ideological leaning etc. influencing their 'scientific conclusions' but we can not brush aside the concerns and offer a template advise on anything FDI.


"Wal-Mart and County-Wide Poverty", Stephan J. Goetz and Hema Swaminathan, Department of Agricultural Economics and Rural Sociology 7E Armsby Building, The Pennsylvania State University University Park,

"The Effects of Wal-Mart on Local Labor Markets", David Neumark University of California -Irvine, Junfu Zhang -Clark University, Stephen Ciccarella-Cornell University

Manoj Agarwal said...

I believe that FDI, intended to benefit producers, will not benefit them unless we initiate some of the basic reforms in this sector such as,
1. Making them available cheap capital, not by subsidizing interest rates but bringing organized banking closer to them.
2. Insurance to their crops.
3. Insurance and health care to landless farmers.
4. Most importantly access to free market (unlike today where farmers are imposed top-down market conditions).
5. Large investments in food processing industry + breaking up of FCI monopoly and inefficiency.
6. Bringing unorganized retail in tax net.

It is doubtful that retail FDI in absence of these reforms, where as per my understanding the government still has the first right to refuse, will benefit producers a bit.

Anonymous said...

The urban support which will vote INC after two consecutive terms of misery thru 2004 to 2013, is well worth losing. Pardon my french, but f*ck this urban support.

Concerned Consumer said...

Opposition to FDI in retail is not a surprise.Nor does opposition to anything by an opposition party in India. When was the last time an opposition party or group applauded a govt decision, except when it was for increasing the members salary and perks? Be that be, we can absolve the opposition for their wrongdoings given the Indian context of being "immature" as a vertue. And this applies to any political party in India. Cong in opposition ruled states too. Onus is on the public to understand what's good for them and to make the right choice. Dont expect those opposed introduction of computers, to come back with apologies. Computerisation of their own offices has to be taken as a public apology. Everybody knows that prices will only fall with the arrival of giant retail chains. As a consumer, do you have to worry more about local 'baniya's pokcet getting lighter, or about your own child crying for milk.

Moreover, why oppose "Samuel Walton" when a more richer "Mukesh Ambani" is already there in Indian retail market?

Pradyumna said...

Ooohhh!

You mean people actually voted over reforms and then on nuclear deal. My my.

And you also mean that in spite of all the scams and anti-free market feelings prevailing now, people who will the most impacted (your small town greasy baniya), will still want FDI retail? I must really be dumb to have thought otherwise

Ajay said...

Risk oulined by you appear true in short term and I'm sure that think tank in BJP has thought about it. The fact that they still decided to take the risk tells that it is about India's long term interests and not about short term losses.

From your article, what BJP should get is the understanding that the KEY is to make people understand India's long term interests.

chinmay said...

Swapan da you have written and excellent analysis but the fact is that the arguments held out by government favoring FDI in retail wont hold for quite many reasons.Firstly many kirana stores in India give goods on credit and many poor customers pay the amounts at end of month.SO there is little chance of poor customers veering towards Walmart and co in long run.

But the traditional support base of BJP is the trading sector which would lose out atlest among middle class is FDI is allowed.So there is nothing wrong in BJP opposing it.Once the retail giants monopolize the markers they will decrease the remunerative rates and other benefits for both producers and customers

Anonymous said...

A correction :-
In "... that facilitated the historic process of deregulation by the Manmohan Singh Government in 1991." (para 1 of the piece), read "Narasimha Rao" in place of "Manmohan Singh".

Anonymous said...

"that facilitated the historic process of deregulation by the Manmohan Singh Government in 1991."

What can I say now? You are seriously misinformed about the government head itself or you have the unusual habit of ascribing a govt to a cabinet minister leaving the prime minister aside. This might suggest that you are one of those gaandhi family chamchas.

Anonymous said...

BJP's opposition to retail FDI is understandable: given the large constituency of traders--which have been hardcore supporters of BJP since it's inception-is threatened by the move. What is irresponsible and incomprehensible is the language and demeanour of it's leaders. MM Joshi said to day that this move was meant to protect 'interests of US, Britan and France'. It is behaving as it will remain in opposition in perpetuity.

Vaibhav said...

1 - If the only good that they will do is to build cold storage and efficient transportation then how will this work if the roads are the same and there is no power......govt shud build roads and power stations and cold storage and not say that walmart will come and build....this is abdicating responsibility

2 - Gadkari makes more power than the Bihar govt and has said that he can do the same if voted to power in UP....that will benefit farmers and not walmart.....

Swapanda.....this time you have not thought it through

sai said...

On the one hand, you state that the FDI policy is the first reform measure the UP has undertaken since 2004. On the other, you claim that the 2009 victory of UPA was attributable to middle class support for a pro-reform Congress. That is quite paradoxical. IMO, reforms do not a major driver of electoral outcomes - sure, a major section of the middle class has benefitted from reforms an are likely to support it. But the size of this class does probably does not exceed 10-15% of the electorate - and given their general apathy towards electoral politics, a much lesser proportion of the actual voters. Also note that a major section of the middle class are the independent retailers who obviously are not going to take kindly to this move.

Anonymous said...

BJP = Bania Janata Party

I am in my twenties and have never voted. Was planning to vote for the BJP in 2014. I'm now gonna vote for Congress just to teach these punks a lesson.

Anonymous said...

Swapan,
You risk losing touch with your audience, if you are not already.

Vaibhav said...

Swapanda.....what say abt internet censorship of congress....how much support would it loose....i think BJP and BJP supporters shud learn from the brazenness with which Congress strives to protect its USP (Gandhi parivar)....they dont care about this or that.....BJP and their supporters do not care about USP(Cultural nationalism and good governance) but more about image....this is something to learn from Congress.....they dont fear robbing daylight and we are afraid of just speaking the truth

Anonymous said...

"I am in my twenties and have never voted. Was planning to vote for the BJP in 2014. I'm now gonna vote for Congress just to teach these punks a lesson. " I have seen several very similar "I'm in 20s, never voted but will now vote for Congress" type of messages at several forums. I'm surprised at the uniformity of the profile and their resolve to not vote for BJP. I wonder is it for real? So many 20 year olds had exactly the same thought at same time on a political subject? Really surprising.

Anonymous said...

FA Anonymous Dec 8th:

I am in my 30s and have long wanted to vote for a credible alternative to the Congress. The BJP is not that alternative. Neither are the jokers of the Third Front.

The BJP's opportunistic stance on FDI in retail reinforces my convictions.