Thursday, Oct 02, 2014

AAP’s misjudgement

With modern retailing, on the other hand, the shareholders could be located anywhere, and the stores would hire workers in Delhi.  PTI With modern retailing, on the other hand, the shareholders could be located anywhere, and the stores would hire workers in Delhi. PTI
Posted: January 15, 2014 12:28 am | Updated: January 15, 2014 12:29 am

On FDI in retail, its government shows a lack of understanding of what benefits aam aadmi the most.

The AAP government in Delhi has decided to block the entry of foreign multibrand retailing, on the grounds that this would induce job loss. The argument underlying this decision is flawed. First, modern multibrand retailing actually generates more jobs for the working class than conventional Indian mom-and-pop retailing, under which family members of the owner work in the shop.

With modern retailing, on the other hand, the shareholders could be located anywhere, and the stores would hire workers in Delhi. Then, typically, modern stores work two or three shifts a day, and thus generate much more employment per store when compared with family-run shops. Further, employment in modern retailing is generally more meritocratic in nature: the persons employed in the store do not have to be relatives of its owners. Second, the AAP’s decision does not kill modern retailing in Delhi, it only restricts it to Indian companies. It is not clear why the shareholders of Indian retail firms should be favoured over those of global retailing firms, particularly when the latter possess a superior technology that is good for consumers and workers.

The AAP may also have failed to gauge the real impact of modern multibrand retailing on voters. A more sophisticated understanding of politics would focus on voters at large and not obsess about the interests of either owners or workers. The real impact of organised retailing is on consumers. And here, the international evidence shows, for instance, that the poor are the biggest gainers from Walmart. Walmart’s remarkable global optimisation of production, inventory and transportation yields low prices for mass produced products that matter the most to the poor. Indeed, the elites in the US look down upon shopping at Walmart. If the AAP government truly aims to cater to the interests of the aam aadmi of Delhi, it would lay out the red carpet for Walmart and its ilk.

The AAP’s decision on multibrand retailing may be seen as yet another illustration of the gap between the politics of protest that has brought the party into prominence and the complex business of running a government which calls for the capacity to balance the specific interests with the general, the short term concerns with those that are likely to endure in the longer run. The decision may also have an unfortunate cascading effect. Gujarat chief minister and the BJP’s prime ministerial candidate, Narendra Modi, has already said that he opposes FDI in multibrand retail. It would be unfortunate if other parties also take their cue from these populist stances.

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