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

How Jim Murphy's mistake cost Labour - and helped make Ruth Davidson

Scottish Labour's former leader's great mistake was to run away from Labour's Scottish referendum, not on it.

The strange revival of Conservative Scotland? Another poll from north of the border, this time from the Times and YouGov, shows the Tories experiencing a revival in Scotland, up to 28 per cent of the vote, enough to net seven extra seats from the SNP.

Adding to the Nationalists’ misery, according to the same poll, they would lose East Dunbartonshire to the Liberal Democrats, reducing their strength in the Commons to a still-formidable 47 seats.

It could be worse than the polls suggest, however. In the elections to the Scottish Parliament last year, parties which backed a No vote in the referendum did better in the first-past-the-post seats than the polls would have suggested – thanks to tactical voting by No voters, who backed whichever party had the best chance of beating the SNP.

The strategic insight of Ruth Davidson, the Conservative leader in Scotland, was to to recast her party as the loudest defender of the Union between Scotland and the rest of the United Kingdom. She has absorbed large chunks of that vote from the Liberal Democrats and Labour, but, paradoxically, at the Holyrood elections at least, the “Unionist coalition” she assembled helped those parties even though it cost the vote share.

The big thing to watch is not just where the parties of the Union make gains, but where they successfully form strong second-places against whoever the strongest pro-Union party is.

Davidson’s popularity and eye for a good photo opportunity – which came first is an interesting question – mean that the natural benefactor in most places will likely be the Tories.

But it could have been very different. The first politician to hit successfully upon the “last defender of the Union” routine was Ian Murray, the last Labour MP in Scotland, who squeezed both the  Liberal Democrat and Conservative vote in his seat of Edinburgh South.

His then-leader in Scotland, Jim Murphy, had a different idea. He fought the election in 2015 to the SNP’s left, with the slogan of “Whether you’re Yes, or No, the Tories have got to go”.  There were a couple of problems with that approach, as one  former staffer put it: “Firstly, the SNP weren’t going to put the Tories in, and everyone knew it. Secondly, no-one but us wanted to move on [from the referendum]”.

Then again under different leadership, this time under Kezia Dugdale, Scottish Labour once again fought a campaign explicitly to the left of the SNP, promising to increase taxation to blunt cuts devolved from Westminster, and an agnostic position on the referendum. Dugdale said she’d be open to voting to leave the United Kingdom if Britain left the European Union. Senior Scottish Labour figures flirted with the idea that the party might be neutral in a forthcoming election. Once again, the party tried to move on – but no-one else wanted to move on.

How different things might be if instead of running away from their referendum campaign, Jim Murphy had run towards it in 2015. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.

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