Myth of livelihoods, fable of organised retail, and the sad parable of governance

First it was the threat of large foreign retailers who would replace small Indian ones and so: No entry to foreign retailers like Wal-Mart.

First it was the threat of large foreign retailers who would replace small Indian ones and so: No entry to foreign retailers like Wal-Mart. Now, it’s the threat of large Indian retailers who would replace small Indian ones and so: No entry to Reliance Fresh, and Spencer. Mayawati is not the first politician to fight organised retail outlets and she’s not going to be the last. When small traders and politicians, therefore, organised themselves into armies of violence, the new chief minister predictably ordered closure of the outlets and bought time by constituting a “high level” committee. She and Mukesh Ambani await its green signal.

The economic argument behind the closure is complex. It rests on the premise that there are hundreds of thousands of small traders (they’re known as mom and pop shops in the West), selling goods that range from low-end commodities like vegetables and matches to high-end luxury goods like branded pens and imported after shave lotions. Being small, they cannot play the volumes game that large retailers can. And so, the prices they charge are high. Once large retailers set up shops, their higher prices will push consumers away and they will lose business. Currently operating at 30-50 per cent gross margins, this group of traders include regular vendors on streets as well as their high street cousins. All of who will lose livelihoods and should be protected, the argument concludes.

Sad as that may be, I’d like Mayawati and her ilk — left or right — to answer one question. What is a larger number — hundreds of thousands or hundreds of lakhs? You don’t need to be an economist to know that the difference is of two zeroes (between 1,00,000 and 1,00,00,000). Somehow, those opposing reforms in retail are unable to see these two zeroes. Everyone knows that the larger zeroes comprise consumers who have been buying trading inefficiencies for six decades now and going forward, because they have no political voice, will continue to buy these inefficiencies, higher prices for goods and increase cost of living.

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But the two extra zeroes also include producers, the sexiest of which are small and marginal farmers. Sexiest because it is this seductive banner all politicians carry into plush 5-star conferences in Delhi and across the world, to be used as a mascot for keeping the status quo — and the farmers poor. In fact, the small and marginal producers are an acutely exploited lot. Study after study has shown just how high the mark up is between the price of a farm tomato and one that the vendor sells. Again, one can’t accuse the vendor of gobbling all the profit but the series of middle men who mark up on the way. The price of tomatoes grows at the rate of 30-50 per cent per transaction. In a movement from farm to the market, if there are five middle men, the price can rise by five to seven times. Which are great returns, but on risk taken by the farmer — of crop failure, of no access to credit, of lack of cold storage to protect his produce.

Examine this argument from the political arena and it gets even more illogical. If voter well being is a good enough starting point for any politician (I’m not excluding caste, religion, community, colour, language), politicians across all hues should be rushing to turn their constituencies into hubs of huge retail outlets. That way, their farmers will get better prices through the reduction or exclusion of the middle men and their consumers will get cheaper goods. In the bargain, the one monster that has been chasing politicians for the past 18 months — inflation — would not only rise slowly, but in many cases fall.

This rests on the assumption that retailers will keep prices in check. But I’m not sure whether there’s need to bring in another regulator here, yet. The biggest and the most effective regulator of all — the market — will take care of prices. Consumers are pretty smart and can and do move with the malls. If it is low prices they seek, it is low prices they’ll get. Look out of your window and you’ll see this movement as one mall after another tries to first get the footfalls and then convert those footfalls into revenues.

But the closure of organised retail, citing law and order as the reason, has one implication that goes beyond business and politics. It is an axe that cuts the very roots of what governance stands for – the provision of law and order so that legal civil activity can proceed; business as usual, so to speak. If the Mayawati administration can’t guarantee this basic governance, it has no business governing. This is indeed the most fundamental of all governance expectations that citizens expect from any government, anywhere across the world. Uttar Pradesh included.

The underreported story of the week: smart investors

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If there were an award for underplaying a story, this week’s honour would go to the underreporting of the restructuring of household savings. In a line: the financial assets of households, at 11.7 per cent in 2005-06 are higher than those in physical assets (10.7 per cent). This (latest data available in the Reserve Bank of India’s recent annual report released last week), breaks a five year trend, beginning 2000-01, when the last bull market crashed in February 2000, following the dot-com aftermath. In these five years, 2002-03 were the years with the highest difference between financial and physical assets, with households choosing property and gold over stocks and funds that added to a difference of 2 percentage points or over Rs 50,000 crore.

This turnaround, where financial assets exceed physical ones by 1 percentage point or almost Rs 36,000 crore is only partial. Here’s a forecast: in next year’s annual report, not only will this trend continue, financial assets will take the lead further. The bottomline: Indian investors are savvier than experts make them out to be — the trend broadly matches market movements and economic sentiments.

Delhi Traffic Police issue advisory for Dussehra, Ramlila from today: Check timing

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As the festival season sets in with Dussehra, and devotees are expected to flock to Ramleela Ground and the Red Fort areas, the Delhi Traffic Police issued an advisory Sunday, saying they will close some routes from Monday until October 3.

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