FDI in retail Sector: Globalization versus the middle class

The recent Government initiative to look into the likely impact of FDI is a late but necessary decision - S. Mohammed Irshad writes from Kerala.

Though this review is inspired by the electoral politic still it carries the existing political reality of India. The move compels the vast middle class traders to oppose the forces of globalisation which ones they supported. If we look back,it would reveal that, the vast middle class traders enjoyed the fruits of globalisation. The opening up of product market especially the consumer market extended too many opportunities to the retail traders of India. Price slashes of consumer durables even if the prices of essential commodities were on rise no Indian retail traders raise any constructive opposition.

On the other hand,the vast retail traders including those who are protesting the current move were once the front runners of globalisation. This however reflects thechanging mode of globalisation; in developing world it slowly seeksunchallenging possibilities to intervene. Among the emerging sector retail is the prominent one owing to the state support to the middle class like organised sector employment and small trading.

In the initialyears of the reforms the flood of goods in the product market creates the new market culture in India. This was aimed at extending new market centres for foreign and domestic goods. The unprecedented growth of product market undermined small and peasant based rural non farm sector to a great extend. Forexample if we look at the soft drink industry in Kerala; the retailers supportto Trans National carbonated drinks (Bottled soda) completely replace the traditional small scale soda manufacturers from the market. In Kerala major traders organizations wages severe protests against the state Government for the implementation of tax never heed the concerns of such groups. Ironically now they are in the forefront to oppose FDI in retail sector.

Why Indian retail market is important for the international players is the following: India ranked 5th in the Global A.T Kearney Retail Development Index, Second only to China in Asia, least saturated of all global markets studied, the least competitive of all global markets studied, implies lower barriers of entry for global players, considering tremendous market size, excellent potential for foreign players. Apart from that, the economic position of Indian middle class favours the entry of retail giants. According to Euromonitor Retail Survey Indian consumer sector is undergoing higher growth rate it states that increase in disposable income of middle class households is the basic cause of attraction and also 20.9%* growth in real disposable income in 99-03 opened attracts he foreign giants.

ICICI Retail Report went on say that current market size is roughly US$ 286 billion and roughly 96%of the 12 Million stores are less than 500 Sq. ft. The forecast Growth rate for the retailing industry is roughly 8.3% for 2003-2008 and Sales from large format stores would rise by 24-49%.

Among the Rs 9, 00,00-crore ($200 billion) retail sector. The size of organised retailing was estimated around Rs 26,000 crore in 2004. However, it is now set to grow at25-30 per cent per annum (The Hindu Business Line,27-05-2005). The majority of retail sector is attached to the domestic small scale industries of the country. Moreover the unorganised retailers constituted the major share of Indian middle class population.

Middle class and vote base:

It is perhaps one of unusual decision of UPA Government to look into a policy decision they have made so far. If we analyse the vote share of BJP and Congress in the last Lokh Sabha election reveals that the majority of urban middle class prefer NDA alliance than Congress. Congress votes mainly from rural sector, yet the UPA Government hardly heed the issues of rural toiling mass in any of its policy. For example the 11^th Plan Approach paper fully silent on the burning issues of rural mass instead it overwhelmingly supports the special economic zones (SEZ) via grabbing thefertile agriculture lands. In fact the land which has been earmarked for SEZ sare under the ownership of land lords, still the economic upward linkageeffects of agriculture can never be met by SEZs. The major beneficiaries of the proposal are Indian multinationals and global trade giants. This is however adilemma for the ruling parties of India; since the ruling parties are always establishes good business relationship with these companies. This is evident from various state government moves to support the national capitalist class toestablish SEZs in the states. Its highly problematic to analyse; how UPAGovernment can get into the business deal of Bharathi-Walmart with theinitiative of controlling FDI in retail. Here the credibility of the move isrest on the capacity of the government to control the FDI in retail sector andends with stopping the income loose of vast unorganised retail traders. Howeverconsidering the political structure of Indian system no Government is sincerein the issues of public concern, thus the fait of the proposed move will be thesame. However, this would change the middle class out look of globalisation inIndian scenario.

Middle class and Ant-Globalisation:

Indian middle class comprises 33.5 million households as at 1995-96 and it owned and 'consumed' most of the expensive consumer products. At 1994-95 prices, their annual household incomes ranged between Rs. 45,000 and Rs. 215,000 (to calculate the latest income statistics, use an annual inflator of 5 per cent). In addition to this class, the "climbers" and "aspirant" classes totaling 23.9 million households in urban India, also have the socio-cultural traits of the "consumers" class and, with time, will join the consumers class (www.indiaonestop.com/middleclassesindia.htm ).

Medium-to-long-term marketing strategy in our system is therefore aim at the aspirants and the climbers as well. This is based on the safe assumption that, except for the destitute class, the other classes are on the way to the next higher class. Thus even country market of India is aiming at the middle class market. This is the reason why the price war of consumer durables in India gets wider middle class oriented. It is evident from the cellular phone industry in India; call rate slash helps widen the middle class market and it becomes an inseparable part of social mobility. As communication becomes cheaper no other social disturbances seem to affect the middle class market. Now in fact the middle class realises that these prices slash of communication keep pace with the opportunity slash.

The opportunity slash would mainly occur to the small scale and artisans sector. Because, they are the major suppliers of the conventional retail market i.e. nearly Rs. 400,000 crore retail market is UNORGANISED (www.indiaonestop.com/consumermarkets.htm). This huge amount is also the business turn over of vast traditional and small scale sector. This is in fact the vote base of both BJP and Congress; the parties which are sowing the seeds of globalisation now force to reap the discontents of globalisation. Still interestingly they are not intended to put any change on the policies. UPA ministrys policy of FDI in retail helps strengthen the vote base of NDA.

Moreover no political party in India is able to imbibe the resentment of vast unorganised retailers. Even if its beneficial to BJP the party is apparently silent owing to the lineages to national capitalist class. The Left parties whom people normally trust is also seem silent on it. The likely upsurge of urban unemployment and poverty would necessarily re-write the electoral politics of India. Even if the UPA is paying a little attention still its not satisfactory since the penetration of global retailers with foreign goods is being carries the economic policy of the ruling as well as the opposition alliances. Ultimately it replaces the less value added domestic products with high value added foreign goods. Middle class opposition of globalisation and reforms inconformity with the declining opportunities certainly attracts state attention and even the compensatory measures like imposition of tariffs and taxes will only strengthen the consumer market with product differentiation and it will not save the real issue of replacement of domestic and country goods.

About the Author:

The author is a research scholar at Department of Economics at University of Kerala, Thiruvananthapuram, Kerala. E-Mail: smirshad77@yahoo.co.in or mohammedirshad31@gmail.com

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