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 farmer 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 Wal-Mart. The doomsday scenario may well be terribly exaggerated since urban clusters with populations below 10 lakh 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.
There 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. Second, 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 patriotism 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 India-US nuclear accord. It has to take care that in opposing the Government on FDI, it doesn’t paint itself as a party of the Flat Earth movement.
