The Gold Standard | Self-destructive

Shocking. Shocking. Shocking. These are the three words to describe the Op.-Ed. written by one Shekhar Swamy who is apparently the Group CEO of R. K. Swamy Hansa. I presume it is an advertising agency. Advertising is a quintessential American creation. It ‘creates’ necessities where none exists, turns them into wants, etc. In fact, the very notion of consumer marketing is a direct contradiction of the notion of rational homo sapiens that the Univ. of Chicago Economics Department has been peddling. The gentleman has also not forgotten to proudly inform us that he is a visiting faculty in the hallowed portals of Northwestern University.

He has written a passionate Op.-Ed. against allowing Foreign Direct Investment in Retail. This blog had refrained from commenting in public for the simple reason that the ultimate verdict on this policy change would have to be seen on the ground. The net benefits of this policy change can be debated ad nauseam in newspaper columns. In the final analysis, its utility is an empirical issue to be settled based on actual experience.

Its advantages are well-known. It is about economies of scale, introduction of technology that affords abetter shelf life to perishable commodities, etc. Infrastructure that would boost agricultural production and productivity will be created. Further, in any supply chain, the lesser the number of intermediaries, the better are the benefits to the end-consumer. Sellers of goods too benefit because intermediaries that have deep pockets and storage capacities can afford to pay better and more.

When the co-operative milk marketing federations came and procured milk directly from farmers with cows, it replaced the milkman who came with his cows to the house and dispensed milk. Why did not we shed tears then?

In the retail sector, Indian corporations have already entered. There is Pantaloon, Reliance Fresh and the chain stores of Mr. Bharati Mittal. If there is any one who should worry about the entry of international chains it should be these existing businesses. Perhaps, that is what is being reflected in these anti-FDI in retail columns.

Those who benefit from this move are not protesting. I cannot recall too many farmers protesting this move on the part of the Government. On the contrary, they are supportive and they welcome it. Traders are protesting. Of course, they would. But, political parties like Trinamool Congress and the BJP are backing them. So, it is clear – of course, not that it was unclear to us before – that these parties are backing middlemen. It is not about farmers and it is not about the millions of end-users.

The opposition to this move in the face of India experiencing an investment contraction in the third quarter (July – September) also defies macro-economic logic. India has a fiscal deficit problem. Government spending is largely wasteful, administrative and on revenue items, mostly. Public investment is down. Private investment too is languishing for various reasons. Certainly, not because nominal interest rates have gone up. Check out Shekhar Gupta’s piece in ‘Indian Express’ on Saturday for some of the reasons as to why the corporate sector is sulking.

The corporate sector – regardless of the conduct of the Congress Government and the Congress Party bigwigs towards the corporate sector – should bat for the right kind of economic reforms. That is what Dr. Ashok Ganguly and Deepak Parekh are calling up on them to do in this statement. One has to applaud their initiative.

India is running a current account deficit. It needs to attract foreign capital – debt or equity – to finance it. Debt, especially short-term debt, is not healthy as are portfolio equity inflows.  So, it would help to receive some foreign direct investment. Not that people would have been queuing up to invest given the kind of advance warnings given by Ms. Uma Bharati of the BJP.

For once,  I am in agreement with Surjit Bhalla. BJP’s conduct in this matter is a display of criminal irresponsibility. Also, remember to check out Shashi Shekhar’s column in Rediff.com and Ashok Malik’s op.-ed. in DNA on the intellectual confusion that reigns in BJP.

In a separate blog post, Shashi Shekhar had this to say about BJP’s economic policy articulation:

let it be said that nobody expects the BJP to make a case for reforms that the Congress itself is half convinced about while its top leadership maintains strategic silence. But one expects the BJP to at least articulate what it stands for and consistently advocate for it  instead of in this episodic and reactive manner rooted in negativism.

Perhaps it is time the BJP looked to its leaders in states like Narendra Modi to articulate its position on economic issues rather than allow this Saffron Left cabal in Delhi to hijack its economic agenda.

Indian politics – Congress Party is very much part of this (see this announcement and this piece by T. N. Ninan over the weekend) – is breaking new ground in its anti-national rhetoric and conduct.