The Broad Mind | The Consumer and FDI in Retail

by S Karthik

In the socialist discourse, there is no place for “consumer”. “Consumer” or “customer” is thought of as a moneyed individual who is not in the best interests of the system. “Worker”, on the other hand is a champion of socialism. Displacing workers can be the worst crime one could commit in a socialist set-up. Consequently, socialist-leaning economies are likely to take measures that favour the worker at the expense of the consumer.

There is also simple economics in play here. Workers, especially those in a particular profession, find it easier to band together and lobby for favours. Consumers, on the other hand, are larger in number and geographically dispersed. In a conflict between workers and consumers, thanks to sheer numbers, the amount each worker has at stake in the conflict far exceeds the amount each individual consumer has at stake. Hence, workers are more likely to group up and lobby, and get the decision turned in their favour.

It has taken about three years of sustained high inflation for the government to take notice of the consumer, it seems. FDI in retail is a classic consumer versus worker battle. More organized retail, and more investment in organized retail, means that consumers are likely to benefit from lower prices, and greater choice. The losers here are the “channel” – the people who are part of the existing (and very long) supply chain. Over the last five years, since the first time the idea of FDI was mooted, the channel had been successful in lobbying the government to hold back the decision.

It appears, though, that the timing of the decision to permit FDI could turn out to be a political masterstroke. Inflation has been raging for a few years now, thanks in part to the government’s own efforts in that direction (MGNREGS, etc.). With two and a half years to go for the next general election, if inflation can be shown as being brought under control by then, it would be a huge political win for the government. Now, if the act were to be passed in the next two or three sessions of parliament, it is likely that the first stores would have started flourishing just around the time elections are due, and if that brings about the promised drop in prices (thanks to elimination of wastage and better infrastructure), it can bring huge political mileage to the UPA.

Taking the name of the “consumer” in general, especially when it comes to essential goods such as foodstuff, is usually a win strategy. The best the opposition will be able to do would be to point out the losses to another large set, but however large that set is, it can never match the size of the consumer set. It is not a frequently taken stand because each party will have a bunch of professional vote banks, and that one of those vote banks lies in conflict with the consumer set. In this particular case, though, there is no particular prominent Congress vote bank that will be upset by the decision, and that has allowed the party to take the side of the “consumer”.

At this moment, the FDI in retail decision appears to be an astute one, and hopefully the government will be able to push it through parliament. With more such measures, and given the mess the BJP finds itself in, it might be possible for this regime to get the support of free market right wingers in the next general election (MGNREGS, food security, etc. notwithstanding).

S Karthik is an independent quant consultant and a research associate with the Takshashila Institution. He blogs at Pertinent Observations and an be found on twitter @karthiks

DISCLAIMER: This is an archived post from the Indian National Interest blogroll. Views expressed are those of the blogger's and do not represent The Takshashila Institution’s view.