India's Pandora’s Box is now being opened

Foreign Direct Investment will help some of India, but won't correct growing inequalities.

Last Friday, the Indian government announced big bang reforms signalling that the Indian economy is now wide open for business. The landmark decision includes allowing 49 per cent foreign direct investment (FDI) in aviation, raising the FDI cap in the media industry to 74 per cent and most pertinently allowing 51 per cent FDI in the sector of multi-brand retail. This means the Tescos and Walmarts of the world can now set up shop in India.

In the lead up to the high octane announcements the ruling party at the centre - the Congress - that leads a coalition government which rather tellingly goes by the moniker of UPA 2 (United Progressive Alliance; "2" to indicate its second term) was reeling under the vertiginous impact of "Coalgate" – a scam unearthed by the national auditor, the CAG (the Comptroller and Auditor General). Suggestive of crony capitalism, the government "gifted" coal mining permits to private players fleecing the national ex-chequer to the tune of £33bn. The new wave of economic liberalisation policies is a laudable attempt to take the spotlight off the scam. The policies are also a damage limitation attempt by a floundering government to counter allegations of inertia in national and foreign publications. The unflattering foreign reviews unsurprisingly hurt most.

The new measures were explained by India’s Commerce and Industry Minister, Anand Sharma, in an "exclusive" on India’s premier news channel, NDTV. He said the reforms, in particular, those in multi brand retailing were what India needed. Let’s set the record straight here. Which India was the minister referring to? If we look at India’s 1.2 billion population as a pyramid, at the apex sit 1.2 million affluent households. They tend to live in India’s top eight cities. Approximately 300 million people are middle class. It is the base of the pyramid that comprises the biggest section in terms of the number of people – at least 700 million people consisting of 114 million families. This is nearly 60 per cent of the country’s population. They include "struggling India" and "destitute India"; those for whom making needs meet is a daily battle and those who are below the poverty line. Surely, the minister was not referring to this chunk of the Indian "market"? They simply do not have the purchasing power for a Carrefour or a Walmart. Their everyday grind absorbs them, survival overwhelms them. Conspicuous consumption does not feature on their agenda of preoccupations. Neither will the big retailers be counting them in. It is a mutual disaffection.

A strong argument in favour of FDI in mammoth retail is that it will generate employment. Surely, it will. But we can’t let the question lie there. We must ask, for whom? Will it source employees from the unskilled, illiterate vegetable vendors who, akin to a capillary network, are spread across the length and breadth of the country? Operating at the point of delivery to the grocery shopper, they are the lifeblood of India’s unorganised grocery sector. Succinctly asked – will the giant retailers employ from the displaced workforce? If the big chains simply usurp their livelihoods what will become of their families entirely dependent on their incomes? Or are they simply not part of this narrative? In which case let’s be clear – in the way FDI is being sold it isn’t for the appeal of the Indian imagination but of a sliver of the Indian imagination.

Since the first wave of economic deregulation reforms in 1991 (ironically passed by the incumbent Indian Prime Minister Manmohan Singh when he was finance minister) select segments of India have unequivocally prospered. Even a cursory look at the 2G spectrum scam and "Coalgate" make clear the benefits accrued to the political brass and to the corporate sector. The famous Indian middle class has also expanded. And on a recent visit to South Kolkata, in the vicinity of an upmarket supermarket, the prosperity of urban sprawl was also plain to see. An open garbage dump heaved and street urchins ran around it. A friend plaintively remarked "garbage dumps are flourishing too". The brush of 1991 painted some of India gold, the other parts left to fester into elision.

Will the brush of the 2012 reforms paint India differently? In the "spillover" effect of the big foreign companies operating in India, there will be benefits to be had. The promises of improved supply chain infrastructure and the elimination of middlemen (how the middlemen will be redeployed is another matter) have been reiterated over and over. The headlines of the "in-favour" rhetoric relay thus - more FDI will drive consumption, manufacturing, economic growth and GDP. But for the holistic temperature of the development of a nation the Gini Coefficient and the Human Development Index are more apposite thermometers – and on both counts, unlike the growth index, India’s score is not reassuring. Also, if we put to the test the theory of how gigantic foreign retailers will encourage Indian manufacturing by citing the example of the "Walmart effect" on American manufacturing – then the prognosis is slim. The bottomline is this: it will certainly help "some" of India, but it is definitely not the panacea to India’s most pressing woes.

 

Members of The Indian National Association of Street Vendors shout anti-government slogans during a protest against Foreign Direct Investment. Photograph: Getty Images
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Voters are turning against Brexit but the Lib Dems aren't benefiting

Labour's pro-Brexit stance is not preventing it from winning the support of Remainers. Will that change?

More than a year after the UK voted for Brexit, there has been little sign of buyer's remorse. The public, including around a third of Remainers, are largely of the view that the government should "get on with it".

But as real wages are squeezed (owing to the Brexit-linked inflationary spike) there are tentative signs that the mood is changing. In the event of a second referendum, an Opinium/Observer poll found, 47 per cent would vote Remain, compared to 44 per cent for Leave. Support for a repeat vote is also increasing. Forty one per cent of the public now favour a second referendum (with 48 per cent opposed), compared to 33 per cent last December. 

The Liberal Democrats have made halting Brexit their raison d'être. But as public opinion turns, there is no sign they are benefiting. Since the election, Vince Cable's party has yet to exceed single figures in the polls, scoring a lowly 6 per cent in the Opinium survey (down from 7.4 per cent at the election). 

What accounts for this disparity? After their near-extinction in 2015, the Lib Dems remain either toxic or irrelevant to many voters. Labour, by contrast, despite its pro-Brexit stance, has hoovered up Remainers (55 per cent back Jeremy Corbyn's party). 

In some cases, this reflects voters' other priorities. Remainers are prepared to support Labour on account of the party's stances on austerity, housing and education. Corbyn, meanwhile, is a eurosceptic whose internationalism and pro-migration reputation endear him to EU supporters. Other Remainers rewarded Labour MPs who voted against Article 50, rebelling against the leadership's stance. 

But the trend also partly reflects ignorance. By saying little on the subject of Brexit, Corbyn and Labour allowed Remainers to assume the best. Though there is little evidence that voters will abandon Corbyn over his EU stance, the potential exists.

For this reason, the proposal of a new party will continue to recur. By challenging Labour over Brexit, without the toxicity of Lib Dems, it would sharpen the choice before voters. Though it would not win an election, a new party could force Corbyn to soften his stance on Brexit or to offer a second referendum (mirroring Ukip's effect on the Conservatives).

The greatest problem for the project is that it lacks support where it counts: among MPs. For reasons of tribalism and strategy, there is no emergent "Gang of Four" ready to helm a new party. In the absence of a new convulsion, the UK may turn against Brexit without the anti-Brexiteers benefiting. 

George Eaton is political editor of the New Statesman.