FDI in Retail: Political blunder?

Prafull Bidwai's piece below is interesting. I feel persuaded to post this response because as far as I can recall in the past twenty years the decision to allow FDI in retail may easily be the one decision that has been implemented against the most widely shared political sentiment. That in itself makes me wonder if there is a viable mechanism for people to have their voices heard, other than through elections.  Because by the time elections take place the consequences of these decisions, positive or otherwise, would any way have been set in motion. Any talk of reversing such policy by any political party is just wishful thinking. Worse still, it smacks of political gimmickry.

I have been following this thread on FDI in retail with fascination, although I have occasionally yawned at some of the arguments that have been put forth.  The arguments in favour of FDI are especially amusing, coming as they do from distinguished economists with all their intellectual firepower and their overarching, even if sometimes ostensible, concern for maximizing welfare.  The tragedy is that the decision that has been made perhaps is not based on any of the arguments that have been advanced for or against FDI but by considerations of political expedience.  The events of the past three or four years tell us clearly what makes for political expediency in our country.

So I add to this chatter my own two paise worth, knowing fully well that whatever we say may not matter one bit and that the economics of rent will decide the outcomes and the rentiers who haunt the streets and bylanes of Lutyen's Delhi will decide what those outcomes ought to be.

Reading through the comments on this thread I experience a sense of déjà vu, a nostalgic throw back to the animated debates that took place around the reforms of 1992. I am reminded of those days because never since then have I seen such a broad based interest in any single economic development as the current debate on FDI in retail.  I say that based on the numerous developments that I have followed in these past twenty years, on the back of the reforms of 1992.  Given the extent of debate that this topic has generated I would like to this juxtapose this decision with the reforms of 1992.

As a manager in an emerging industry in 1992 I had the good fortune of being on the pitch where the match was being played; although my place as a rookie was on the stands, somewhere in the back and roughly around mid-wicket.  In other words one merely get to see the ball whizzing past at right angles to where one was seated, without getting a good sense of line or length.  But being on the grounds gave a good sense of the air around the game and the mood on the stands.

Many of us industry managers received the news of reform with much trepidation.  We could say for sure that the world would not be the same any more.  But we did not know if it would be for the better.  Most of the people I knew felt that the dirigiste economic paradigm prevailing at that time had failed.  Life for nearly everyone, except the few that profited from the dispensation, was difficult to say the least.  There was a sense that things could only get better.  So there was a sense of anticipation when the reforms were enacted, although it was mixed with some apprehension.

In the initial years the sense of well being that many Indians gained from the reforms outweighed the pain that those that did not gain would have suffered.  That is clearly my impression.  We got to enjoy better pay, more jobs, wider possibilities of goods and services to choose from, many new industries emerged, many Indian companies went global and so on.  At a global level there was a sense of pride and achievement that Indians could compete globally in a few industries at least.

Sadly, the experience of the past few years would suggest that these gains and blessings have not been unmixed.  They have come at a serious price. While we turned over much of the business that the state was conducting to the market, it appears that we did not have the law and order and political / governance apparatus to ensure that the withdrawal  of the state did not automatically set right many of the ills that the reforms set out to. No matter whether the CAG got his figures right or not, what he has revealed beyond any doubt is that post reforms plundering has gone on an unprecedented scale. We may all get our few minutes of entertainment watching the live coverage of a few netas being paraded in and out of jail; but the stolen wealth is lost forever, with all of its attendant economic consequences. 

One could quibble that plundering on this scale is recent and that it was after many years after reforms were initiated.  So, one might argue, that the plundering cannot be attributed to reforms. On a similar vein one could argue that it is wrong to attribute the inestimably grand larceny to the free market paradigm. To my mind these are lame arguments that do not deserved to be dismissed as even academic. It is the enormous potential for prosperity that was unleashed by the reform process, without adequate regulatory and constitutional safeguards, that allowed a few unscrupulous operators to pocket a disproportionate share of that prosperity.

In short, as it happens with many major events in history, the impact of the reforms on Indian society can be ascertained with some degree of accuracy only with the passage of time, with the benefit of some historical remoteness. The instances of abuse that have been recently brought to light make one want to be careful in one's enthusiasm about the positive effects of reforms of 1992, or at least the way we went about it. I am not suggesting that not having initiated the reforms would have been better.  But the reforms needed to take into account the larger context in which those changes were being wrought.

We are not alone as a nation in this learning.  There is a fair bit of literature that describes and analyses how the former Soviet Russia may have run ahead of its social and political context in turning to a market-centric paradigm. Absent essential mechanisms for ensuring law and order and personal safety and enforcement of property rights and contracts, economic activity in that country suffered grievously in spite of having a much larger stock of high quality human capital, a much larger stock per capita of a variety of natural resources and in spite of not being burdened with some of the problems that we suffered – and continue to suffer – from such as a large population, high population growth rate and stark social and economic inequality.

Net net, a narrowly viewed and short sighted economic view of a political issue can sometimes lead to regrettable outcomes. If I recall right the current PM is famous for having once remarked that you cannot divorce economics from political realities.

I believe that the matter of FDI in retail has to be viewed in the light of the experience with reforms. There are two important lessons of relevance from that experience.  One, hasty economic decisions can lead to poor political actions.  Two, politically sensitive matters are far too important to be left to economic technocrats and vested interest groups, especially if they are from a school that is prone to believe sincerely that Rs 32 is adequate for daily subsistence.  A more rounded view is required on such matters.
The current decision on FDI does not seem to keep those lessons in mind. There is little in the conversation that addresses the impact on those that will be adversely affected by this decision.  Even if one were to assume that those traders and middlemen are people who have been shortchanging consumer interests, as some opinions in this thread seem to suggest, as stakeholders in this democracy they have a right to have their concerns addressed. The livelihood of many local traders and shopkeepers is sure to be affected. I would suspect that the human costs here could be more serious since we do not even think of how to make these people economically productive, an essential part of any debate that one sees in situations that involve large scale labour displacements such as in the case of redundancies caused by developments in technology and globalization in the western world.

Harbingers of these situations have already manifested themselves in some of the cities where many small retailers have become landlords by literally shutting their shops and renting out their stores to mobile phone companies and so on.

Numerous arguments have been advanced for and against FDI in retail in this thread.  I will not revisit all of them here.  But two of them appear to be especially amusing.

The first of these is that if foreign investors do not do it anyway Indian capitalists and business families will, as seen from the entry of numerous large business houses into "organized" retailing. That argument has been quashed by assertions that the impact may not be the same as Indian businesses may not have pockets as deep and they may be reluctant to invest in distribution infrastructure and so on. But the amusing part is this line that we anyway made one mistake in allowing Indian business houses to set up large retailers. Let us now see if we can set right that mistake by compounding it with another.  Soon we might fall back on the Nixonian theorem: If two wrongs don't make a right, try a third. And I shudder to think what that third might be: Capital adequacy norms for starting a retail business? How about Rs1 crore as a minimum to start? All in equity!

The second is even more quixotic.  It goes as follows:  Why do we make so much noise about FDI?  It is not going to impact Indian retailing after all.  Indian retailers are far too innovative and adaptive to be washed away by the advent of foreign retailers. And that is not just the idle view of some academic.  It is a view that was echoed by a minister in a recent interview to a leading national daily.  That makes this argument dangerously specious too.

If it is of no consequence to anyone why is the Government allowing so many thousands of many hours to be wasted on a development that is of no consequence? That smacks like the many red herrings that parents throw at their credulous children just to hush them up.

Time and again, since we embarked on this journey of reform, without thought and preparation, we seem to have allowed the interests of the common man to be compromised. We allowed foreign investment into real estate although indirectly and with many strings. But all that the flow of this sizeable amount of capital seems to have done is created assets that have been meant mainly for the elite and the wealthy - upscale apartments, glitzy malls running on subsidized diesel, fancy office towers and so on. For the ordinary man, at Rs30 lakhs or more an ordinary apartment is way beyond reach. We opened up the securities markets. And all that it seems to have done is to benefit a few thousand families in a radius of a few square miles. That is not my view. That is the published view of one man who was at one time suspected to have been involved in questionable trades himself.  And if that is not enough the markets are routinely punctuated by one scam or another, the problem that reform of securities market was supposed to address. And for all that I am not sure what all of that has done to the common man.  So much so the PM was reported to have once remarked that the state of the securities market was not important enough to affect his sleep or something to that effect. FDI has been steadily liberalized across sectors. And now there is a view that is emerging that all of that has led to investments and growth that did not lead to the expected number of jobs, if any.

All of these are bound to have their social consequences. As people who call the tune we will all have to pay the piper.

Some time last year I was listening to a mature group of students from a leading French business school who were on a tour to understand India. Some of them noted that the level of tolerance of the Indian was remarkable compared to the level of inequality that was apparent. They contrasted it with some of the Latin American countries where the poor are a lot less understanding, making them unsafe places for the wealthy. As I heard them speak I could not help recalling an observation that has struck me in the past fifteen years or so. When I was a student, we lived in independent houses as well as apartments. There were no security guards in any of those houses. Security was essentially a fetter that bound VIPs. Today, even in the most modest apartments, one of the largest common costs is the cost of security. It is another matter that in spite of that expenditure personal effects get routinely robbed, car stereos are routinely stolen, houses are routinely burgled and once in a way residents are physically harmed or even killed. How long will it be before all of that is more commonplace? With the FDI in retail we may have given yet another fillip to this unhealthy possibility.

I cannot help imagining what C Rajagopalachari would have said in a situation like this:  Vinaashakaley, vipareetha buddhi.

Usha's The Chosen

My reading has been on a decent trot lately.  In less than two weeks I completed reading Usha's The Chosen.  Don't laugh.  That is brisk reading by my standards. 

Reading one of Usha's books has been on my mind for many years, long before she won the Vodafone Crossword award.  More than a colleague she has been a friend and I have been curious to see how she writes.

The plot in The Chosen is quite different and a lot more involved than the plot in Adiga's WT.  I will end up comparing these two although I am not sure that is appropriate in any way or for any reason.  Adiga and Usha write different genres of fiction.  I do not know what to label them; but I can sense enough of a difference to make that distinction.  The only reason I compare them is that I read Usha soon after I finished reading Adiga.

For starters, I narrated the plot in WT in three sentences or so in an earlier blog.  Usha's story would take a lot more real estate.  It reminds me, in parts, of the Bollywood classics of the nineties like Hum Dil De Chuke Hein Sanam, Taal and so on:  Lots of characters that weave in and out of the story, rich in narrative detail, tonnes of melodramatic romance that seems to go on for a little too long for the comfort of an unromantic churl such as me.  That last bit is in sharp contrast to Adiga's plot where romance is primarily consists of his characters, men and occasionally women too, indulging in the primeval biological urge of man,  in wham-bam-goodbye-ma'am (or goodbye man) style.  Usha's characters are eternally in foreplay, I would say, at the risk of sounding risque. I had almost begun to think for a while after reading WT that this may well be the essence of man-woman relationship after all.  It took me a while to come out of that cynical reverie.

The story in The Chosen goes somewhat like this.  Nagaratna (Nagu) and her mother are cast away in Bangalore by the tides of misfortune that wash away Nagu's father into an untimely end.  Studious Nagu completes her BCom, takes up a job in Vidyalaya, a school that is different in that it tries to provide a spiritually orientated education to the kids of well heeled parents who, I presume, would like their children to grow up as genteel citizens in spite of their wealth.  Nagu's decides to work as an administrator at the school in preference to a more mainstream job in the same garment factory as her sister in law. That is just one of her many early attempts at not wanting to belong to the middle-class life styles and aspirations of the joint family that she grew up in. 

Usha portrays skillfully the many nuances of a lower middle income community in the Bangalore of the late nineties / early two thousands although in my opinion she is off by a few years in this view.  I suspect that the city and its very middle class sensibilities had been run over by then by the immigrating parvenus of the fashion and technology world, with their swinging, drug and drink laden culture of rave parties and wild sex that they brought to the city with them. I absolutely loved Usha's presentation of the strange irony of an institution that peddles a spiritual upbringing, in which the iron knuckles of Miss Pandit,wrapped inside the velvet gloves of exhortation of self improvement and self development,typified in letters sacking the various teachers,put down petty egos and politics with ferrous firmness.

The school is a project of a spiritual institution on the west coast of Karnataka. As an employee who works closely with Miss Pandit, Nagu gets entwined in the other world that would appear like a natural extension - the ashram.  But somewhere in Usha's delivery that fusion does not come through smoothly enough.  Again, I enjoyed Usha's description of life at the ashram, complete with intrigues and mysteries. Now, those may be what I saw them as.  It is possible Usha did not intend them to be so. One gets a sense of how the peace in the spiritual peace in that ashram can be quite brittle, even vulnerable.  How the overall atmosphere of serenity could well be the happy coincidence of a number of individuals aspiring and struggling to come to terms with the numerous personal battles that they are fighting within themselves.  And of how all of that spirituality, like American healthcare, is only for those who can afford it in the form of a sizeable financial deposit.  But for those who can afford, the ashram is very egalitarian in its dispensation of its spiritual
largesse, seemingly admitting people without any pesky KYC style questions about where and how they made their pelf - as in the case of the hardnosed sweatshop owner Vasant.

And then, while working in the school, Nagu experiences incipient romance, which to my mind happened rather too abruptly. But it drags on like it often does in Indian movies or in the Mills and Boon novels that my sister used to borrow when I was in college and I used to devour surreptitiously for fear of embarrassment.

Caught inside this vortex of a romance she does not know what to make of, the highly aseptic world of pine windows with taselladed curtains exclusive silks, and arty dance programmes by men and women in tumescent clothes at the ashram that seemed to be willing to beckon her and the power that she enjoyed at the school that came with the proxmity that she seemed to enjoy with Miss Pandit, Nagu seems to be well and truly detached from her lower middle income roots and its realities that she would have loved to but had not managed to break off completely.

And then one day this bubble, this chimerical world of glass that she had allowed to envelop her suddenly crashes.   She is let down by the man she thought was madly in love with.  Miss Pandit, the high achiever dumped her as she scrambled out of the school without so much as taking leave of Nagu, to save her own claim to the higher stakes of the leadership of the ashram.  And Nagu is left to the not so tender mercies of a new management of the school that in a sardonic twist types out the same letter, sacking Nagu from the school, that she had earlier typed out to six others.

That leaves Nagu. all of twentyone, with little worldly experience, not belonging to either of the world that she wanted to belong to or to break away from.  Meanwhile her friend had been happily married to one of the men whose romantic interest in her she had disapproved of and spurned, while the other man who seemed to be willing to wait for her in spite of her numerous rebuffs had moved along slowly in life to be able to eventually buy a car, albeit used.

Usha's mastery of the art lies in her skills as a raconteur.  She demonstrates great virtuosity in presenting detail that reads like a pen portraits, something that Namita Gokhale points out in her review, although in places it appears that she may have brought in some of those details just because she felt it had to be there even if she may not have been sure it was needed.  Her imagery is flawless, something that I find missing in many contemproary Indian writers. I only wish the style was a little easier on less literate folks like me.

Her story has many more characters than Adiga has.  But every most of them add to the plot, barring a few "extras" like Dhana, Sylivie or Vijay who do not even titillate me, let alone enthral.

At a broader level though one wonders if all the story about Nagu's past in Gubbigudi could have been narrated in just three pages.  I am sure Usha intended to carefully develop her Nagu out of her beginnings in Gubbigudi.  If she did, I seem to have missed that evolution.  As an indolent reader who loves parismony with the written word I would have liked to miss those few extra pages and been perfectly happy with a 280 page novel instead of the 320 in the edition that I read. And that I guess is what makes me see some sort of a Freudian association with the Bollywood classics of the nineties.

Since I started comparing with The Chosen with WT, it may be in order for me to close with this final point of comparison.  Adiga's Ashok Sharma aka Munna and the many sleazeballs of Darkness that populate the story make you sit up fuming at the depravity that they spread across the country, including in my beloved Bangalore. The characters and settings of Usha's novel leave you with a nice languorous feeling, quite like the nice fuzzy drowsiness that overpowers one after a hearty meal of good bisibelahulianna and basundi. One feels lullabied into a hope that the ashrams in the real world will offer some real solace to the embattled soul in a world torn by greed and conflict, like the greenery that the residents of Muttu had helped grow in the red and rocky barrenness of Kavalkot.

Usha:  If you ever read this review, I would like you to know that after reading The Chosen you have turned from a friend I like to a friend I admire too.  I shall waste no time reading your other novels.  I say that not in the tongue in cheek manner that Benjamin Disraeli is supposed to have responded to his writer friend.  So please keep writing more of them.  So that there is hope for souls like me who turn despondent about the future of Indian writing after working through pulp like Seven Point Nothing, or whatever is the title of that book was that was made into a campus based movie.   
 
Nanni. Namaskaaram.