More on the luddite and stupid policies of the Indian Politicians

Here is a full column from the FT which I am reproducing in full as this needs to be said. I have fulminated about this issue earlier, but this tells the story in far more detail.

Read and weep!

India spurns creative destruction at its peril

By Jo Johnson

Published: October 3 2007 19:30 | Last updated: October 3 2007 19:30

Paying villagers to dig holes and break stones is easier than undertaking the reforms that create sustainable jobs. Anyone who believed Rahul Gandhi’s elevation to the rank of Congress general secretary signalled a push to “reinvent and modernise” India’s ruling party will have been disappointed by his first initiative.

In a meeting last week with Manmohan Singh, the prime minister, who has hailed him as the country’s “future”, Mr Gandhi – son of Sonia Gandhi, party president – demanded an extension of a vast make-work programme to all 600 districts in the country, up from about 330. The government duly obliged and from next year the National Rural Employment Guarantee Scheme, which promises one member of every household 100 days’ paid work each year, will reach all corners of India.

The move was designed to signal the Cambridge and Harvard-educated former management consultant’s empathy for the aam admi, the “common man”, who has yet to share the fruits of 8 per cent-plus growth, and to help the Congress party tart itself up for a general election that could come next year. The government’s communist backers have threatened to withdraw support if it moves ahead with a nuclear co-operation agreement with the US that they believe compromises India’s strategic autonomy. While the expansion of the gigantic NREGS boondoggle, a scheme blighted by corruption and fraud, is a handsome coming-out present for the 37-year-old Mr Gandhi, it provides no solution to poverty and underemployment in India’s immiserated villages.

But at the same time as Congress politicians were celebrating the creation of futile, back-breaking tasks for the rural poor, Reliance Industries, one of India’s flagship industrial groups, was being forced to abandon plans to create thousands of real jobs at its revolutionary new chain of grocery stores. India has one of the most antiquated retail sectors in the world. Most farm produce is sold in street markets or door-to-door by hawkers pushing carts. Although malls have been springing up in the cities, Indian consumers still principally do their shopping in the country’s 12m “mom and pop” stores. Uncomputerised, poky and offering limited choice, these family-owned shops account for more than 95 per cent of India’s $330bn retail industry.

Taking on the small-trader lobby was always going to be a fight. Reliance and a handful of other Indian business houses, including Bharti, which has a wholesale joint venture with Wal-Mart, have made strong arguments in support of organised retailing. Reliance promises to invest $5bn-$7bn in a “farm-to-fork” supply chain and to bring the largest and most inefficient sector of the Indian economy into the 21st century. It talks of lower prices for consumers, better-off farmers, higher labour standards, massive investment in rural infrastructure and elimination of waste (about 40 per cent of perishable goods rot before reaching market). The scale of its ambition is breathtaking: it has opened 350 stores since launching in Hyderabad in November and wants $25bn sales
by 2010.

Yet much of this is now on hold. A Luddite anti-supermarket movement is spreading across the country. Gangs of traders, backed by opportunist politicians, are systematically vandalising the company’s outlets in states as far apart as Uttar Pradesh in the north, Orissa in the east and Kerala in the south. Reliance last week took the dramatic step of closing down its 20 supermarkets in UP, a state of 166m that is pivotal to the success of its retailing venture. This week it dismissed 870 workers, shelving plans to open hundreds more stores and create an estimated 50,000 jobs. Its move came after Mayawati, the state’s populist new chief minister, suspended Reliance’s operations and berated the company for creating a “law and order situation”.

UP is not alone. Reliance this week dismissed 470 workers in communist-run West Bengal, with a further 300 expected to follow in the coming days. It may be forced to take similar steps in Orissa and Kerala, where the government has launched its own chain of 5,700 shops selling heavily subsidised products. Organisers of a national “Quit Retail” movement hope to attract 100,000 to a demonstration in Mumbai on October 10. They are calling on the government to enact a law banning Indian companies from muscling in
on the mom and pop stores that provide a livelihood for about 40m people and create the densest network of shops in any country in the world, with approximately 11 stores for every 1,000 people.

That is not going to happen. But it goes without saying that the backlash against organised retailing by Indian companies bodes ill for further loosening of the country’s strict foreign direct investment rules.

Whereas China started permitting FDI in retailing in the early 1990s, successive Indian governments have failed to embrace the creative destruction that liberalisation brings. New Delhi’s timid approach has been to give India’s oligopolists a head start in consolidating the sector before foreign groups such as Tesco, Carrefour and Wal-Mart can enter under their own steam. Now even that is at risk from political short-termism. If Mr Gandhi really wants to show he is the future, and is not in hock to the outdated policies of Congress’s socialist past, he should extend a welcoming hand to organised retailing – both Indian and foreign.

All this to be taken with a grain of piquant salt!!!