Why Modi’s dream of acche din will continue to remain a dream

narendra_modi
Sushma Swaraj, the minister of external affairs, must be one unhappy woman these days. This, coming from the fact that prime minister Narendra Modi among other things is also India’s real minister of external affairs.
Modi is currently touring Germany, after having visited France. In an op-ed in the German daily
Frankfurter Allgemeine Zeitung the prime minister wrote: “We have re-energised the Indian growth engine. The credibility of our economy has been restored. India is once again poised for rapid growth and development…It is the only emerging economy where growth rate is rising. The prospects are even better.”
Prime ministers need to say such “optimistic” things when they go on foreign visits. But things on the ground level in India are not very different than they have been in the past. Take corporate performance for one. In a research note released last week Crisil Research expects “India Inc.’s revenue growth to slip to a 7-quarter low of 2.5 per cent on a year-on-year (y-o-y) basis,” for the period between January to March 2015. This is less than half the growth of 5.4% seen in the period October to December 2014.
Crisil believes that the steel sector will see revenue declines of 10-11%. The petrochemicals industry will see a revenue decline of 20-22% on account of drop in global crude oil prices. “Growth for construction and capital goods sectors’ will continue to remain sluggish due to lower order backlog and slow project execution,” the research note points out.
The revenues of the automobile sector are expected to grow by around 6%. “While sales
of cars and medium & heavy commercial vehicles have picked up, muted growth in international businesses and the two wheeler space will impact the topline.” The two wheeler companies are not expected to do well primarily because of the non-seasonal rains in large parts of the country which will impact the production of the rabi crop. This will dent farm incomes.
As Crisil Research points out: “Domestic consumption and export-oriented sectors are likely to outperform but, here too, sectors heavily dependent on rural consumption such as motorcycles, tractors, and FMCG have been facing severe pressure on volumes as unseasonal weather conditions and slow growth in crop prices have dented farm incomes.”
This will have an impact on the Fast Moving Consumer Goods(FMCG) sector as well. Crisil forecasts this sector to grow at 8-9% during the period January to March 2015. The sector had grown at close to 14% in between April and September 2014, the first half of the last financial year.
What this clearly tells us is that the performance of the Indian companies will remain weak during the period January to March 2015. What is interesting is that before Narendra Modi came to power, corporate performance had been relatively stronger than it is now. During the period April to June 2014 (the first quarter of the last financial year) the revenues had grown by 12.8%. In each of the three quarters before that, the revenues had grown at higher than 10%.
Since July 2014, the revenue growth started to fall and has continued to fall. Modi came to power on May 26, 2014. Corporate growth is a function of many factors and just blaming the Modi government for it is not fair. But the claim that Modi made in Germany that “ we have re-energised the Indian growth engine,” is not correct either. Without growth in company revenues, there is no way the overall Indian economic growth can be re-energised. Both are closely linked.
Further, if sustainable economic growth is to be created jobs need to be created to employ India’s burgeoning workforce. Sample this—Every year up till 2030, 13 million Indians will enter the workforce. This means more than a million Indians are entering the workforce every month. And if enough new jobs are created for them, economic growth will automatically happen.
But is that the case? Are enough jobs being created? The trouble on this front is that India does not have good data on employment. In fact, the latest economic survey makes this point: “The data on longer-term employment trends are difficult to interpret because of the bewildering multiplicity of data sources, methodology and coverage.”
Despite this, some broad inferences can be made by looking at data from multiple data sources. (I will spare you the details here. But anyone interested in the details can refer to
Box 1.3 Employment Growth and Employment Elasticity: What is the Evidence? In Volume 1 of the Economic Survey).
As the Economic Survey points out: “Regardless of which data source is used, it seems clear that employment growth is lagging behind growth in the labour force. For example, according to the Census, between 2001 and 2011, labor force growth was 2.23 percent (male and female combined). This is lower than most estimates of employment growth in this decade of closer to 1.4 percent. Creating more rapid employment opportunities is clearly a major policy challenge.”
This is a major challenge for the Modi government and honestly it doesn’t seem to have done much on this front. Jobs are essentially created by small entrepreneurs as they grow big. The labour laws in India essentially ensure that most firms start small and continue to stay small. For this anomaly to be corrected, India’s labour laws need to be simplified. Nothing has happened on this front at the central level, since Narendra Modi came to power.
Over and above this, the entire process of starting and running a business in India is not easy. As per the Ease of Doing Business ranking India ranks 142 in a list of 189 countries. When it comes to the ease of starting a new business it comes in 158th. When it comes to enforcing contracts India comes in 186th out of 189 countries.
What this clearly tells us is that the entire Indian system works against an individual wanting to establish and run a business. What it also tells us is that in order to run a business in India you need to be well connected and that explains the surfeit of crony capitalists who do well in India.
If jobs are to be created the ease with which a business can be started and operated in India needs to be improved. Sadly, nothing much has happened on that front despite the so called dynamism of Narendra Modi. And unless this changes, the entire dream of
acche din will continue to be just that. 

The column originally appeared on The Daily Reckoning on Apr 14, 2015

Why Narendra Modi is still far away from Delhi

narendra_modi
Vivek Kaul
 If it were to be left to the Indians who use Twitter and Facebook, Narendra Modi, the chief minister of Gujarat, would have already been appointed the Prime Minister of the country. But alas that cannot be the case.
Yesterday (June 9,2013), Modi was appointed the Chairman of the campaign committee of the Bharatiya Janata Party (BJP) for the 2014 Lok Sabha election. This appointment is being seen as the first step that India’s main opposition party has taken towards declaring its prime ministerial candidate for the forthcoming election.
The appointment has sent out a clear signal that Modi is the ‘leader’ among the leaders in the BJP. But even with that there is still a long distance between Narendra Modi and 7, Race Course Road (the residence of the Indian Prime Minister). As the old English saying goes “well begun is half done”. But its only half done and half still remains to be done.
First and foremost it is clear that the BJP does not have the wherewithal to get a majority on its own (Neither does the Congress. No party does in the current scheme of things). This has happened because the proportion of votes got by national parties has fallen over the years. In 1991, national parties among them got around 81% of the votes polled. By 2009, this number had fallen to less than 64%.
The party has a very small presence in large parts of Eastern India (West Bengal and beyond) and is practically non-existent in Southern India, except for Karnataka. The irony here is that across all states in India, the Rashtriya Swayemsevak Sangh(RSS), the parent body of the BJP, has the highest penetration in the state of Kerala (though UP has more 
shakhas). Despite that the BJP has never been able to win a Lok Sabha seat in the state, till date.
The party is not much of a force to reckon with in Andhra Pradesh, though it has won a few seats in the state in the past when it was in alliance with the Telgu Desam Party (TDP). The state sends 42 MPs to the Lok Sabha. The TDP now does not want to be seen aligning with the BJP because that had cost the party its Muslim vote bank in the past. “This is not going to help the BJP. It will not improve the party’s fortunes,” said a TDP leader while reacting to Modi’s appointment. Jagan Mohan Reddy, the other big player in the state, has also said in the past that he won’t support the BJP. Though recent news-reports suggest that BJP is trying to get close to Reddy and his YSR Congress.
In the neighbouring state of Karnataka, the BJP was decimated in the recent assembly elections. This after BS Yeddyurappa, the most famous BJP leader in the state, quit the party. The going theory is that is the BJP has to be a serious player in the state that elects 28 MPs to the Lok Sabha,, it will have to get Yeddyurappa back into its fold. The question of course is will Modi attempt to get Yeddyurappa back into the state? And if he does that, how does he plan to handle all the corruption allegations that Yeddyurappa faces?
One of the major issues against the incumbent Congress government is the rampant corruption that it has unleashed. And if BJP decides to associate itself with corrupt politicians like Yeddyurappa and Jagan Mohan Reddy, then it will be putting itself in the same boat as the Congress.
In Tamil Nadu, which elects 39 MPs to the Lok Sabha, the BJP is non existent. But the Chief Minister J Jayalalithaa currently seems to be on amicable terms with Modi. “At a personal level, Modi is a very good friend of mine, I have high regard for him as an able administrator. My good wishes are always with him whether he wins election in Gujarat or achieves an elevation in his own party. I’m happy for him,” she remarked after Modi’s appointment. Whether the two ‘good friends’ translate their friendship into a pre-electoral alliance remains to be seen. Also, the BJP cannot forget that the Atal Bihari Vajpayee led NDA government fell in 1999, due to the mercurial Jayalalithaa, pulling out of the alliance.
The four southern states together elect 129 MPs to the Lok Sabha. The BJP has presence in only one of these states. Hence, its important that the BJP allies with other parties in Tamil Nadu and Andhra Pradesh. But alliances in these states come with there share of problems.
Then come the states of Orissa and West Bengal which elect 63 Lok Sabha MPs between them (Orissa – 21, West Bengal – 42). The BJP was in alliance with Biju Janata Dal (BJD) in Orissa till 2009 for a period of nearly 11 years. But since then Naveen Patnaik, chief minister of Orissa, and the main leader of BJD has been cold towards the BJP.
As he told The Economic Times in an interview today (June 10, 2013) “ I have always maintained that our party will not forge an alliance with either the Congress or the BJP, we will continue to maintain equi-distance from both.”
Mamata Banerjee’s Trinamool Congress, one of the main political parties of West Bengal, has also been in alliance with the BJP in the past. The BJP has been in recent times trying to get close to Mamata. It did not put up a candidate in the recent by-election to the Howrah, Lok Sabha constituency, which Trinamool won. Mamata is also known be as mercurial as Jayalalithaa, and hence can be a tricky alliance partner.
A major reason that Narendra Modi has been appointed the premier leader of the BJP is the fact, that the party expects this move to help it do well in the state of Uttar Pradesh (UP), where it has rapidly lost support over the last 15 years. In the current Lok Sabha the party has only 10 MPs from the state, which elects 80 MPs to the Lok Sabha. In the past it has even had more than fifty Lok Sabha MPs from the state. To tackle this Modi is being projected as an OBC leader in the state by the likes yoga guru Baba Ramdev. Modi’s protege Amit Shah has been appointed as the state party in charge. The resurgence of the BJP is not possible unless the party gets around 30 seats from Uttar Pradesh.
While Modi might draw in the votes in Uttar Pradesh, what does he do about Bihar? Nitish Kumar, the chief minister of Bihar, does not want his party Janata Dal (United) association with a Modi led BJP. So even if Modi gets in the votes in Uttar Pradesh, a breakup of the BJP-Janata Dal(United) alliance in Bihar, might negate the overall effect. And if BJP and Janata Dal (United) fight elections separately in Bihar, Lalu Prasad Yadav’s Rashtriya Janata Dal might benefit from it. In Bihar, the upper castes vote for the BJP, whereas the a spate of lower castes vote for the Janata Dal (United), which is one of the reasons that makes the combination unbeatable. The state elects 40 MPs to the Lok Sabha.
So there are several tricky alliance issues that Modi needs to tackle. And the sooner he tackles them the better it is. Pre-poll alliances are much more beneficial in the first past the post system that India follows. This is the only way for the BJP to ensure that the anti incumbency vote against the Congress led UPA does not split.
Of course, Narendra Modi understands the alliance pressure on the BJP very well. Nilanjan Mukhopadhyay quotes Narendra Modi in the book 
Narendra Modi – The Man. The Times as saying “When Atalji became prime minister for the first time in 1996 – we got no allies – Akali Dal and Shiv Sena had been with us earlier but not new allies. But in 1998 the situation changed – the parties and their leaders also increased (laughs). Then in 2004 our seats got reduced – the allies got reduced. The issue therefore is that the number of allies depends on the winnability of the BJP”.
And the winnability of the BJP will depend a lot on the alliances it is able to enter before the elections. Given, Modi’s hardline image, it will be difficult for the BJP to get prepoll alliance partners (not that it will be easy to get post poll alliance partners), given that no party wants to drive away the minority vote. As Abheek Barman writes in The Economic Times “A BJP led by Modi will find it much tougher, without minority votes. Modi’s supporters say, so what? Modi will help bring all Hindu votes together. This united Hindu vote is a tired, old RSS assumption.” There is nothing like a Hindu vote. The Hindus largely vote along caste lines.
On its own the BJP has managed a best of 182 seats in the 1998 and 1999 Lok Sabha elections. Since then the number has fallen. After the 2004, Lok Sabha elections the party had 137 members in the Lok Sabha. This fell to 116 members after 2009 Lok Sabha elections.
If the BJP wants to come to power, it will have to best its tally of 182 seats, given that with Modi at the helm it will be more difficult for the party to find post poll alliance partners. As Sebastian PT writes on the Business Today website “There is little doubt that Modi is the most popular leader in the BJP today but he is still a polarising figure in Indian politics-very similar to L.K. Advani in the 1990s. Advani had to step aside for AB Vajpayee, who was seen as having the ability to take everyone along, especially the allies.” And for all we know Narendra Modi might have to step aside for someone else who is more agreeable to the potential allies. So one cannot write off the likes of Sushma Swaraj, Rajnath Singh or for that matter even Arun Jaitley.
So Delhi is still faraway for Narendra Modi. Or as the sufi saint Nizamuddin Aulia once said “
Hunoo Dehli Door Ast (Delhi is still far away).
The article originally appeared on www.firstpost.com on June 10, 2013
(Vivek Kaul is a writer. He tweets @kaul_vivek)
 

Fear is the key: What Sushma, Rajiv and i-pill have in common

ipill

Vivek Kaul

It’s around midnight as I write this and I am just back from a late dinner with a friend. Before we started to have dinner my friend insisted that I use a hand sanitiser. While I have nothing against people pretending to be clean all the time, but the smell of a hand sanitiser really puts me off and can even make me sneeze.
Given that I refused to use it.
“How can you not use a hand sanitiser before eating?” she asked.
“Well I have washed my hands,” I replied.
“But that’s not enough,” she insisted.
“Why not?” I asked.
“Because a hand sanitiser kills all the germs.”
“What germs?” I asked, ripping into the tandoori chicken.
“Ah. End of conversation. Guess cleanliness isn’t really your thing!” she exclaimed at my ingratitude.
The idea of using hand sanitisers has caught on(especially with women) after the recent global swine flue scare. But does it really help? As brand management expert Martin Lindstrom writes in his latest book Brandwashed – Tricks Companies Use to Manipulate Our Minds and Persuade Us to Buy “Neither swine flu nor SARS can be prevented by the use of antibacterial cleansing gels. Both viruses are spread via tiny droplets in the air that are sneezed or coughed by people who are already infected. ”
In fact as Lindstrom told me in an interview “What’s ironic is that none of those products…actually do any better job than soap and water.”
That being the case why are women so in love with hand sanitisers? As Lindstrom puts it in Brandwashed “The idea of an unseen, potentially fatal contagion has driven us into nothing short of an antibacterial mania.”
And companies making hand sanitisers have simply captured this mania as a profitable money making proposition. As Lindstrom told me “The companies have done a extraordinary job in building their brands on the back of the fear created by those global viruses – indicating that we’ll be safe using these brands…The ironic side of the story however is that the life expectancy in Japan is decreasing for the first time in history – why – because the country simply has become too clean – the Japanese have weakened their immune system as a result of overuse of hand sanitising products.”
What this little story tells us is that fear of something happening (or not happening for that matter) is a great selling strategy and you can’t argue with a woman who has made up her mind.
As Lindstrom put it “we’re all hardwired to be seduced by fear – fear is the number one soft button in our brain – it is a survival instinct. Fear is used by most insurance companies and even Colgate who claimed in one ad that they could remove the risk of cancer by the usage of their toothpaste,” said Lindstrom.
The fact that fear is a great selling strategy makes companies build it directly into their advertisements. The advertisement of i-pill, an emergency contraceptive pill, shows a mother telling her daughter “Kyun risk le rahi hai?” when the daughter calls and hints that she has had unprotected sex.
Or take the case of Saffola oil which has run a highly successful campaign over the years on the fear of a heart attack. It used to run an advertisement for years showing a man being wheeled into the operation theatre, with the sound of the ambulance siren in the background (Let me concede I also use Saffola oil for cooking).Fair and Lovely, which claims to be a skin lightening cream, has run on a plank of the fear of rejection for a “dark” girl. This despite protests from several quarters. The advertisement of the health drink Complan is built around the fear that those not having Complan will not grow as tall as those having it.
Almost every insurance company uses fear as a selling strategy. This can vary from the fear of death, to the fear of not having enough money to meet hospital bills, to the fear of not having enough money for the son’s or the daughter’s education or not having enough money for the daughter’s wedding and so on.

As Tyler Cowen, an economist at George Mason university in the US, writes in the book, Discover your Inner Economist “Often , buying insurance is about investing in a story about who we are and what we care about; insurance salesmen have long recognised this fact and built their pitches around it.”
Having given these examples, let me concede that some of these advertisements do push consumers towards buying the right product. But most of these advertisements are misleading. As the Business Standard recently reported “Whether it’s Complan or Horlicks, they claim to make a child taller and smarter. But their promises are not based on any scientific data….Abu Hasem Khan Choudhury, minister of state for health and family welfare informed the Lok Sabha in a written reply on November 30 that the food regulator had begun prosecution proceedings against manufacturers of 19 leading brands and issued show cause notices to 19 others for making false claims regarding the nutritional value of the product in advertising and on the label.”
As the story further pointed out “ For instance, Complan, a leading drink brand, claims it makes children grow twice faster. Horlicks promises to make children “taller, stronger and sharper”. Kellogg’s Special K claims people who eat low fat food in their breakfast tend to be thinner than those who do not, without providing any scientific study to back this claim. Products like Saffola oil, Rajdhani Besan and Britannia Vita Marie biscuits have been booked for making false claims of being “heart-friendly” and “reducing cholesterol”.”
All these products play on the fears and insecurities of consumers. If my kid doesn’t drink Complan/Horlicks he won’t grow tall. If I don’t eat Kellog’s Special K I will become fat. And if I don’t have Saffola oil I will have a heart attack.
Lindstrom summarises this phenomenon very well in a paragraph in his book Buyology – How Everything We Believe About Why We Buy is Wrong “That if we don’t buy their product, we”ll somehow be missing out. That we’ll become more and more imperfect; that we’ll have dandruff or bad skin or dull hair or be overweight or have a lousy fashion sense. That if we don’t use this shaving cream, women will walk by us without a glance…That if we don’t wear this brand of lingerie no man will ever marry us.”
Politicians are looking to do exactly the same thing when they practise the politics of fear. The recent debate on FDI in big retail had Sushma Swaraj saying things like “Will Wal-Mart care about the poor farmer’s sister’s wedding? Will Wal-Mart send his children to school? Will Wal-Mart notice his tears and hunger?”
She also said that “The remaining 70 percent of the goods sold in these supermarkets will be procured from China. Factories will open in China, traders will prosper in China while darkness will befall 12 crore people in India.” This is scaremongering of a kind similar to that indulged in by companies to sell their products.
Arun Jaitley, the leader of opposition in the Rajya Sabha, also indulged in the same when he said that “India will become a nation of sales boys and girls.”
And before I am labelled to be a Congi by the internet Hindus let me clarify that politicians from across the political spectrum have practised this strategy at various points of time.
“When a big tree falls, the ground shakes,” said Rajiv Gandh after his mother Indira Gandhi was assassinated by her Sikh bodyguards.
A section of the Indian National Congress (back then known as the Congress-I) whipped up mass frenzy against the Sikhs after the assassination. In the pogrom that followed Sikhs were killed all across northern and eastern India. And the Congress Party got 415 seats out of the 540 seats in the Lok Sabha, a feat not achieved even by Jawaharlal Nehru, the biggest leader that the party has ever had.
Kanshi Ram, had formed the the Dalit Soshit Samaj Sangharsh Samiti or DS4, before forming the BSP. The rallying cry for DS4 was”Thakur, Brahmin, Bania Chhod, Baki Sab Hain DS4.” This worked so well that when Ram decided to form the BSP he came up with a similar sounding but a more subtle slogan. “Tilak Tarazu aur Talwaar, inko maaro joote chaar.
The late Bal Thackeray was a master of this craft first putting fear of Tamils in the minds of the Marathi Manoos and then Muslims as times changed. His nephew Raj, who left to form his own party the Maharashtra Navnirman Sena, took this strategy further and has put the fear of Bhaiyyas and Biharis in the minds of the Marathi Manoos.
Varun Gandhi made front page headlines when in a speech he said “Ye panja nahi hai, ye kamal ka haath hai. Ye kat** ke galey ko kaat dega chunaav ke baad.” Then there are also examples of parties like DMK, which have been built on creating the fear of the loss of culture and language.
When politicians try to create fear in the minds of the citizens their aim is similar to that of companies trying to create fear in the minds of consumers. Fear “is what our brains remember…”writes Martin Lindstrom in his book Buyology. Fear creates what Lindstrom calls “somatic markers” or brain shortcuts that link the brand sold to what needs to be done to take care of the fear: “Want you kid to grow tall? Get him to drink Complan!”
“Want a healthy life without a heart attack? Eat Saffola oil.”
Or in a political context “Don’t want the Chinese take away Indian jobs or sell goods in India? Vote for the Bhartiya Janata Party.”
“Want freedom from the oppression of upper castes? Vote for the Bahujan Samaj Party.”
“Want to revenge the assassination of Indira Gandhi? Kill Sikhs but don’t forget to vote for the Congress.”
While it is not as simple as that, but that is what it essentially means. Fear also gives rise to anxieties and insecurities of people and helps politicians come up with a war cry and make themselves easily heard. As Bill Bonner and Lila Rajiva write in Mobs, Messiahs and Markets “Men are ready to die for the group and kill anyone who resists its will.”
The war cry before the Babrji Masjid was destroyed was “Ek dhakka aur do, Babri Masjid tod do!”.
As Lindstrom writes in Brandwashed in the context of marketers “So whether it’s germs or disease or some feared version of a future self, marketers are amazingly adept at identifying a fear out of the zeitgeist (a German word which means the spirit of the times, italics are mine), activating it, amplifying it and preying on it in it in ways that hit us at the deepest subconscious level.”
Politicians do the same thing. They identify the prevailing fear, like Wal-Mart will get in all low cost Chinese goods (as if Indian companies are not) and destroy the kiranawallas. And then they activate it and amplify it by talking about it in their speeches. And if the comments on this piece that I wrote a couple of days back are anything to go by, they have been successful at it.
And so was Rajiv Gandhi!

The article originally appeared on www.firstpost.com on December 7, 2012.

(Vivek Kaul is a writer. He can be reached at [email protected])

 

FDI debate: Why Sushma should get the stupid-statement award

sushma swaraj
Vivek Kaul
It’s that time of the year when awards are given out of for the best things and possibly the worst things of the year. And the award for the most stupid statement of the year has to definitely go to Sushma Swaraj, the leader of opposition in the Lok Sabha.
During the course of the debate on the government decision to allow foreign direct investment into multi-brand retailing or what is more popularly referred to as big retail, she said: “Will Wal-Mart care about the poor farmer’s sister’s wedding? Will Wal-Mart send his children to school? Will Wal-Mart notice his tears and hunger?”
These lines sound straight out of a bad Hindi movie of the 1980s with dialogues written by Kadar Khan. Yes, Wal-Mart will not care about the poor farmer’s sister’s wedding. Neither will it send his children to school. And nor notice his tears and hunger simply because its not meant to do thatThis is because Wal-Mart is a selfish company interested in making money and ensuring that its stock price goes up, so that its investors are rewarded.
The same stands true for every Indian company which is into big retail (be Tata, Birla, Ambani or for that matter Big Bazaar). No company, Indian or foreign, into big retail or not, is bothered about the tears of the farmer. And neither is the government.
Let’s look at some other things that Swaraj went onto say. “The remaining 70 percent of the goods sold in these supermarkets will be procured from China. Factories will open in China, traders will prosper in China while darkness will befall 12 crore people in India,” she declared.
Already a lot of what is sold in India comes from China. Around three weeks I went around several electronic shops in Delhi trying to help my mother choose a refrigerator. Almost all Indian brands had compressors which were Made in China. If one takes the compressor out of the equation what basically remains in a refrigerator is some plastic and some glass. And all that is Made in India.
My television set which is a Japanese brand is also Made in China. A leading Indian electrical company buys almost all the irons that it sells in India from China and simply stamps its brand name over it.
A lot of pitchkaris that get sold around the time of Holi and diyas and electronic lighting that get sold around the time of diwali are also Made in China. As a quote from a story that appeared in The Times of India story earlier this year went “It seems that ‘Made in China’ has researched our festivals and sensed the need of the customers. For the past 10 years, the business of local sprinklers is decreasing due to stiff competition with Chinese sprinklers. We are facing huge loss, plastic powder through which the pichkaris are prepared locally are bought at Rs 100 per kg while at the same time, there is no subsidy or relaxation on the name of festival,” shared Bihari Lal, a local manufacturer and trader of sprinklers.” Chinese made colours also available during Holi.
And none of this has been brought to India by Wal-Mart. It was brought to India largely by Indian entrepreneurs and traders, a lot of whom form the core voting base of the Bhartiya Janata Party (BJP) and also fund the party to a large extent.
Made in China has become a part of our lives whether we like it or not and it will continue to remain a part of our lives, with or without Wal-Mart. If Wal-Mart does not supply us with Made in China goods, the Indian entrepreneurs and retailers will surely do, primarily because Chinese goods are cheaper than the Indian ones. Hence, what Swaraj wants us to believe is already happening with no Wal-Mart in sight.
The other point that comes out here is the ability of Wal-Mart to source stuff from China. This is not rocket science. Indian retailers can also do the same thing. As Rajiv Lal of the Harvard Business School told me in an earlier interviewIf Wal-Mart is operating in Brazil there is nothing that Wal-Mart can do in Brazil that the local Brazilian guy cannot do. If you want to procure supplies from China, you can procure supplies from China as much as Wal-Mart can procure supplies.”
Swaraj also talked about predatory pricing that Wal-Mart would resort to. “These supermarkets introduce predatory pricing. At first, they will introduce such low prices, that will finish the rest of the market. Then when the customer has no other choice, they will keep hiking prices and looting the people,” she said.
This statement is also misleading As Rohit Deshpande of the Harvard Business Schoool told me in a recent interaction that I had with him “ For a company like Wal-Mart historical strategy is fairly easy to understand. It is to make a major branded product available cheaper. So you will have a wider assortment of branded product than any of their competitors that’s the first thing. The second thing is that they have private label. They keep increasing the percentage of their private label within each of their broad categories. So the consumers get trained to come to the store because they can find an assortment of branded products. And once they become loyal to your store then they find that they can make price comparisons within the store and they end up buying your private label. And then your margin is really so much better. It’s a strategy that has worked well for Wal-Mart.”
So for this strategy to work Wal-Mart has to ensure that they stock private label goods (basically their own brands) which are cheaper than other brands. Hence, Wal-Mart might decide to stock it’s own brand of soap which is lets say cheaper than Lifebuoy. For this strategy to work their own goods will have to be cheaper than other branded goods. Hence, it can’t keep increasing prices and keep looting people as Swaraj wants us to believe. Indians aren’t exactly idiots.
Also, if you have visited any of the big retail shops over the years you would have realised that these shops have been increasing the number of private label brands that they sell. As of now this is largely to limited to things like pulses, noodles, sugar etc. The point is that big retail in India is following the same strategy that Wal-Mart does worldwide.
The other interesting point that comes up here is that Wal-Mart is able to offer low prices primarily because of two things. One is the fact that it gets its real estate cheap because it typically sets up shop outside city limits. And two is the fact is the homogeneity of the population when it comes to consumption.
A typical Wal-Mart in the United States is situated outside the city, where rents are low. But such a strategy may not work in India. “It’s not easy to open a 150,000 square feet store in India. That kind of space is not available. They can’t open these stores 50 miles away from where the population lives. People in India don’t have the conveyance to go and buy bulk goods, bring it and store it. They don’t have the conveyance and they don’t have the big houses. So it doesn’t work,” explained Lal.
This is something that marketing guru V Kumar agreed with when I interviewed him sometime back. “Even if Wal-Mart is there in every place, the way they are located is typically outside the city limits. So only people with time, motivation and a vehicle, will be able to go and buy things. And the combination of these three things is very rare.”
The other factor as to why Wal-Mart may not be able to offer very low prices in India is because there is no homogeneity when it comes to consumption behaviour leading to a situation where the company may not have the same economies of scale that it does in other parts of the world.
As Kumar told me “Does the country as a whole consume common things or there are regional biases? In a country like Brazil people eat similar foods that every retailer can sell.” In India clearly things are different. “In India between South, East, West and the North, there is so much heterogeneity that you need localised catering and marketing. So consumption behaviour varies therefore unless you are willing to carry heterogeneous products in each of the locations it is tough,” said Kumar.
The point I am trying to make is that Wal-Mart is not such a big fear that it was made out to be by Swaraj. They do make their mistakes as well. As Deshpande told me “They have had hiccups in the interest of scale and cost efficiency. They have sometimes pushed products that did not make sense for the local market. An example, I believe it was in Argentina, where Wal-Mart, around July 4(the American independence day) had a lot of American flags shipped into their stores.
Pankaj Ghemawat, the youngest person to become a full professor at Harvard Business School makes an interesting point in his book Redefining Global Strategy. As he writes “When CEO Lee Scott (who was the CEO of Wal-Mart from 2000 to 2009) was asked a few years ago about why he thought Wal-Mart could expand successfully overseas, his response was that naysayers had also questioned the company’s ability to move successfully from its home state of Arkansas to Alabama…such trivialisation of international differences greases the rails for competing exactly the same way overseas at home. This has turned out to be a recipe for losing money in markets very different from the United States: as the former head of the company’s German operations, now shut down, plaintively observed, “We didn’t realise that pillowcases are a different size in Germany.””
Wal-Mart had to pull out of South Korea as well in 2006.
Hence, Swaraj could have clearly done some better research before making one of the most important speeches of her career. She could have read the recent column that P Sainath wrote in The Hindu , where he talks about Chris Pawelski, an American farmer and the onions that he produces.
As Sainath writes “While the Walmarts, Shop Rites and other chain stores sell his (i.e. Pawelski’s) kind of onions for $1.49 to $1.89 a pound, Pawelski himself gets no more than 17 cents. And that’s an improvement. Between 1983 and 2010, the average price he got stayed around 12 cents a pound. “All our input costs rose,” he points out. “Fertiliser, pesticide, just about everything went up. Except the price we got.” Which was about $6 a 50-pound bag. Retail prices though, soared in the same period. Distances are not the cause. The same chains sell cheap imports from Peru and China, driving down prices.”
The other interesting point that Sainath makes it that companies even dictate the size of the onions he produces. As Sainath writes “Pawelski held up the onion. “They want this size because they know you won’t use more than half of one of these in cooking a meal. And you’ll throw away the other half. The more you waste, the more you’ll buy.” The stores know this. So wastage is a strategy, not a by-product.”
Such examples on Wal-Mart and other big retail chains are not hard to find. A Google search throws up plenty of them. A speech against the negative effects of big retail should have been full of such examples instead of saying things like whether Wal-Mart will be bothered by farmer’s sister’s wedding. 

The article originally appeared on www.firstpost.com on December 5, 2012.
(Vivek Kaul is a writer. He can be reached at [email protected])