x Abu Dhabi, UAE Thursday 20 July 2017

India's new reforms have no meaning for the poorest

Is allowing the entry of global retail giants really the solution to economic problems on the subcontinent?

For eight days, Bhagwan Das, a 15-year-old boy who lives with his grandmother in the village of Barkadih in the heart of India's Jharkhand province, lay in bed, felled by a particularly bad bout of malaria.

All the able-bodied men and women of the family had long ago migrated to Varanasi, Mumbai and Delhi in search of work, so there was no one to take him to the local doctor. Last week, as his conditioned worsened on the ninth day of his illness, a cousin was summoned from Varanasi to take the boy to a hospital.

In India's big cities, meanwhile, the news was all about the increasing political fragility of the government led by Congress Prime Minister Manmohan Singh.

He had announced a second wave of economic reforms, the media reported: allowing foreign behemoths to enter retail trade, increasing the price of diesel, and opening aviation and broadcasting to foreign investment.

But Bhagwan Das and his family (including his aunt, Ramani, a maid in my home) seemed immune to the political crisis. Mamata Banerjee, head of the Trinamool Congress in West Bengal, withdrew from the Congress-led government; the news was received with a shrug.

Mr Singh's argument that foreign investment is desperately needed cuts little ice with people like Bhagwan Das and his family. If 20 years of reform have hardly improved their hand-to-mouth existence, how would another wave make a difference? There are not one but several Indias, and most of Delhi has little connection with many of them.

India's poor and marginalised are much more likely to understand the astoundingly vulgar figures being bandied about in scandals: $32 billion (Dh117.5bn) in the telecom sector and now $33.5 billion in the coal trade. The venality of the political class is not news, but the coal scandal shows that Mr Singh, known for impeccable financial integrity himself, has presided over one of the darkest and most corrupt periods in Indian history.

This raises a question: If the corrupt were brought to book, would India still need global retail giants like Walmart and Carrefour and Tesco to increase prosperity?

No matter what Mr Singh says, these huge retail enterprises are going to change India. Some changes will be for the better: investments in cold storage and supply-chain efficiency will reduce the toll of food waste, for example.

Still, some analysts note that modern supply chains already exist in much of India for milk products, and that food and vegetables account for only about 10 per cent of household expenditure. Does India really need Walmart?

Others doubt the claim that Walmart and the others will improve farmers' profits by cutting out middlemen. India is a complicated country, and those "middlemen" are part of the vast unorganised population. Lack of education or skills keeps these people out of manufacturing or other sectors, leaving them to be small-time vendors, a cohort that has increased from 39 million in 2000 to 47.8 million in 2005. These people are extraordinarily vulnerable to large retail enterprises.

Moreover, studies have found some interesting results when multinational corporations begin to control the complete supply chain, as has happened in the coffee industry in Ethiopia and Nicaragua, for example. When big companies integrate vertically - from owning the land on which the coffee is grown through to marketing and retailing, destitution and starvation can increase, because the multinational in question tightly controlled costs at all stages, to increase its profit.

And here is another factor: analysts point out that Indians rarely realise that Walmart's unprecedented global success is directly proportional to its success in China; in 2010, 70 per cent of its $420 billion turnover came from its 352 stores in 130 Chinese cities.

But with the trade gap between India and China widening every month - in favour of China - the truth is that the flood of cheap Walmart goods that will be coming into India will have been made in China. Already, analysts point out that the lighting and toy industries in India have been almost obliterated by cheap Chinese goods.

To be sure, the Congress policy of allowing majority foreign ownership (51 per cent) in areas such as "multi-brand retail" could help modernise India, by enhancing skill development: pushing small farmers into forming cooperatives, even as small shopkeepers learn to compete with the behemoths by personalising their service even more. The chairman of the PM's Economic Advisory Council, C Rangarajan has admitted that the new foreign direct investment in retail will certainly "displace" small traders, but that they must learn to fight back.

Can India take on Walmart? In November 2011, when this intended policy was first announced, Time magazine pointed out that India's agriculture sector was so primitive that there is room for all players, including for Walmart to bring 35,000 Indian farmers into its supplier fold by 2015.

Just as the Big Mac has of necessity been transformed in India into the McAloo (potato) burger, perhaps India's incredible diversity will also persuade Walmart to change its tactics here.

As for people like Bhagwan Das, perhaps Manmohan Singh and his cabinet will find it in themselves to target this section of India's citizens by universalising health care and food as well as education. If they do, it will at last give the lie to those who insist that policy initiatives such as those in retail are almost exclusively aimed to help India's rich and famous.

 

Jyoti Malhotra is a political and foreign affairs analyst based in Delhi

On Twitter: @jomalhotra