Market economy? or, market society?

The ongoing debate on the FDI in retail is intolerably superficial at times. For a rational debate, the fundamentals of conflicting alternatives must be understood. Here are some basic truths about conventional Indian retail. For thousands of years, retailing in India has been local community business - selling retailers and buying households being familiar with each other. Even now Indian retailing is mostly neighbourhood, relation-based business.

There are 15 million retailers in India, including hawkers and pavement vendors. This translates to the greatest retailer density anywhere in the world - more than one retailer for 8 Indians! In contrast, China, more populous than India, has less than a twelfth of India’s retail density; just 1.3 million retailers - one for 100 Chinese.

In India, one retailer does not stock all needs of all customers. Several neighbourhood retailers - hawkers, roadside vendors, bunks and kirana shops - taken together stock and meet all their needs. The Indian retail business is estimated at $400 billion. Of which the share of corporate is now 5 percent; the rest 95 percent is handled by traditional retailers. The wholesale-retail trade in India has evolved as part of its social milieu over millennia, organised and linked by local relations. According to an FCCI study, food - read agriculture - accounts for 63 percent of retail trade. Here, some 74 million strong small farmer-wholesaler-small retailer combine - a social inheritance of generations - works, not hierarchically, but laterally through neighbourhood relations.

Some 58.8 million small-marginal farmers from 6.8 lakh villages sell their produce at 47,000 haats/shandies to some 15 million wholesalers-retailers. It is the largest decentralised business in the world. They all operate within a radius of 16 km of where they are. Yet, only 40 percent of the food produced is traded; the balance 60 percent is barter-shared by social relations within villages. This [60 percent] sharing and [40 percent] trading keeps rural India alive.

The Parliamentary Standing Committee Report on the FDI in retail [June 2009] says that traditional retail employs 40 million people; and finds the corporate retail claim to 20 lakh job “highly exaggerated”. The Committee is right. Walmart, with $422 billion global turnover, employs just 2.1 million people.

That is, with more than India’s retail business in its balance sheet, it provides less than 5 percent of India’s retail jobs! So the organised retail’s proven job potential is less than 1/20 of the performance of traditional retail. Where from did Anand Sharma get his maths that the FDI in retail would generate 10 million jobs then?

This stentorian noise for the FDI in retail makes four claims. One, the organised retail would avoid the huge - ‘50,000 crore - waste of farm products due to lack of efficient supply chain; two, with middlemen eliminated the farmers would get better prices; three, Walmarts and Tescos would procure farm products and export them like they do from China, which traditional retail cannot. Four, it will yield more employment.

The claim about employment is bogus. What Walmarts and Tescos could not do elsewhere, they would not do here. The next claim, namely, like in China, Walmarts and Tescos would ramp up India’s exports ignores the basics of Indian and Chinese economies. China’s domestic consumption is low, just 35 percent of its GDP; the balance 65 percent is its exportable surplus. It has built this huge surplus over decades. India with a high domestic consumption of 58 percent has no such exportable surplus. Actually, it is sensible for Walmart to bring in goods from China, made cheaper by cheap yuan, into India.

Already Chinese goods are outselling Indian goods in India. India’s annual trade deficit with China, now $20 billion, is estimated to reach $278.5 billion by 2014! Far from making India prosperous, Walmarts  and Tescos may impoverish it.
The claim that the FDI in retail will eliminate middlemen and enrich farmers is not borne out by facts. See the record of Tesco, the largest retailer in the UK, in contrast. It “exploits small farmers in the UK and worldwide”; “hastens their replacement” with monoculture plantations; “poses serious risks for developing country farmers” who have traditionally supplied to local street markets.

Further, “rather than growing their produce and taking it straight to a market, they have to deal with a chain of middlemen, supermarket’s standards of uniformity in shape and size, risking rejection of lot of their produce”. Farmer-friendly FDI in retail is contradiction in terms.

The campaign that the FDI in retail would prevent waste by efficient supply chain management ignores two vital facts. One, the national highway forms only 2 percent of India’s road network, but handles 40 percent of the road traffic! The other roads can handle only trucks smaller than 20’; and link only local markets.

Walmarts and Tescos can’t build roads. The government has to. If it does, Walmart or Tesco are not needed. Two, on storage, a recent MIT paper says that as “demonstrated by the case study in rural India, the solution to food storage needs to be a bottom up approach. Communities need to be identified where the people have access to fresh food that is currently wasted and who are willing to put in the time to store it properly. Farm cooperatives are potential candidates.”

So, bottom up society, not topdown Walmarts or Tescos, is the answer.

Finally, the debate on the FDI in Indian retail misses out the most crucial point. Not only Indian retail, the whole of Indian economy functions more on relations, less on contracts. That is why 60 percent of the farm produce is socially shared. The trade in the rest are based on neighbourhood relations. When contracts replace human relations, it yields not “market economy” but “market society”, where even families function on contracts.

Margaret Thatcher once said: “There is no such thing as society. There are individuals and families. That is all.” But, the experience of the US/West has proved that traditional families cannot survive without functioning traditional society. As the US Bureau of Economic Research had foreseen in 1970s, now family functions have been effectively taken over by corporates and the State! Unbridled market first dismantles the relation-based society, then disturbs families, to yield a purely contract-based ‘market society’ finally.

The relation-less retail model of Walmarts and Tescos fits the contract-based US/West. But, of late, even in the West, debate on “market economy” vs “market society” has begun - “market society” being derided as Anglo-Saxon. qq
QED: The real issue is not the FDI in retail, but what does the Indian Government, economists and elites want in India finally? A relation-friendly “market economy”? Or, a relation-less “market society”?