Aam bania is more powerful than the aam aadmi

Last week, 50 million shopkeepers and traders staged a bandh against the government decision to allow 51% foreign investment in multi-brand retail chains. What this actually proved was the hollowness of the claim of small shopkeepers to be weak underlings representing the unorganized sector. The 50 million traders on strike exceeded India’s entire organized labour (around 30 million). Shopkeepers simply cannot be called unorganized or poor. In my local market, shopkeepers say that even the smallest shops are worth a crore.

Dominated by banias, small shopkeepers are notorious for cheating customers through adulteration and fiddled weighing scales. They are also notorious for evading sales tax and income tax. That’s why the bania is widely despised (although it is wrong to tarnish all with the same brush).

Yet we have the astonishing spectacle of several political parties and state governments supporting the crorepati bania against foreign retailers, whose alleged crime is that they will lower prices so drastically as to wipe out small shopkeepers. If indeed, foreign retailers will reduce prices dramatically–a highly exaggerated hope-this would be a fabulous blessing for the aam admi, struggling with inflation. So, politicians who oppose foreign retailers are promoting the aam bania against the aam aadmi. This is all phrased in socialist rhetoric, but amounts to backing rich traders against poor consumers.

Why does this happen? Because politicians always woo vote banks and financiers. Baniasconstitute a highly organized vote bank (totaling 50 million in last week’s bandh). They are also political financiers, and not of the BJP alone. That’s why they are wooed even by supposed leftists.

Traders and shopkeepers are highly organized in many countries , and so have political clout disproportionate to their numbers. During the US Great Depression, shopkeepers persuaded President Roosevelt to enact anti-competition rules called Resale Price Maintenance (RPM). RPM obliged manufacturers to set a minimum price for products, which could not legally be undercut by large chains with economies of scale. Several decades later, the US courts struck down RPM as anti-competitive. But it is testimony to US shopkeeper clout that RPM continued for so long, and is still sought to be reinstated through the backdoor in many states.

Britain also had RPM for decades. This was abolished by the Conservative government in 1964, amidst furious protests from shopkeepers. Some analysts claim that the Conservatives lost the 1964 general election because of shopkeeper fury, though other analysts disagree.

In sum, the bania shopkeeper is powerful in all democracies. He uses small-man rhetoric to advance his interests, but, far from being weak and unorganized, is actually highly organized, whereas the consumer is not. The bania constitutes a vote bank, which the ordinary consumer does not. The bania is an important political donor, which the aam admi is not. For all these reasons, the aam bania repeatedly triumphs over the aam admi.

The farmer’s lobby is large and strong in India. Yet it has been beaten repeatedly by banias in agricultural trade. Chengal Reddy, head of the Consortium of Indian Farmers Associations, favours foreign investment in retail: he says it will bring better technology to farmers and cut out bania middlemen. Earlier, he strongly favoured the abolition of the APMC Act, which obliges farmers to sell produce only through government mandis, which are mediated by traders. Despite political rhetoric about top priority for farmers, most state governments still prohibit retailers from buying directly from farmers.

Even Punjab, which favours foreign retailers, has not abolished restrictions on direct corporate buying. Why? Because the trader lobby is highly organized and contributes significantly to politicians. This nexus seems unbreakable.

Politicians opposing foreign investment keep repeating that the East India Company entered India as a trader and then took over politically. Are conditions really the same today as in the 18century? China today has a phenomenal 57 million sq ft of retail space owned by foreigners. Has it become a vassal of imperialists? Of course not. Other Asian countries like Korea, Taiwan, Thailand and Indonesia see foreign retailers as catalysts of new technology and price reduction. Can it be otherwise in India?

The bania has easily survived the entry of Indian giant retailers, and will survive foreign ones too. He uses political clout wherever possible to stem any erosion of profit. The shopkeeper lobby in the past managed to delay the implementation of VAT (value added tax) in many states, notably Uttar Pradesh and Tamil Nadu. Unsurprisingly, these two states have now opposed foreign investment in retail. That shows how strong the bania lobby remains. This is the true reason for the political ruckus over foreign retailers.

11 thoughts on “Aam bania is more powerful than the aam aadmi

  • 2011.Dec.28 at 11:14
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    @NavinKumar

    Please get your citations straight before accusing someone else. India’s population is 1200 million as per 2011 census and not 100million as suggested by you. Hence 50 million does not constitute half of indias population!

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  • 2011.Dec.19 at 18:42
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    None of the Indian cities will have large enough space for these mega stores to operate from within the city – so they will be located on the outskirts. Now, you may argue, that therefore they are not competing with the bania, but hold it for a moment.

    The same bania also provides 15-30 days credit to the lower and lower middle class of our society, and makes sure that they can survive till the next pay check. The bania is able to do this, because right now he has a mix of clientele – those who purchase on credit, and those who purchase in upfront cash. With mega stores coming in, the ‘beneficiaries” – the upfront cash customers will disappear, and will seriously hamper the bania’s ability to support the lower income group through the informal short term credit that he is able to offer today.

    The same bania also employs 2 – 3 low skilled workers directly, and many more indirectly (e.g. local transporter for ferrying stuff to the shop). All this add up to substantial amount of employment generation for low skilled section of the society. It would go away with the demise of the bania shops.

    So, I don’t see FDI in retail as an open and shut case in favour of the multi-brand mega stores with benefits for all.

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  • 2011.Dec.19 at 13:13
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    It seems that keeping out FDI has one more vested interest which has been quite well hidden. Allowing large foreign chains will threaten the current large retailers like Spencers, Reliance, More etc. These are run by the major induatrial houses. So I am not so certain that blocking FDI is just about the vested interest of the small bania. It also affects the large retailer! Thus FDI will always be opposed. Loser is the common man.

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  • 2011.Dec.15 at 12:31
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    sir this is out of topic question.but tell me the real reason why rupee is depreciating so fast.As far i came to know it is not due to outflow of dollars.please help me.

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  • 2011.Dec.12 at 16:46
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    The bania community has lobbied and got a stay on FDI in retail but this doesn’t seem to last long as the government itself is not in favor of price rise. Hope that the deadlock ends and we see Walmarts of the world enter India big time.

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  • 2011.Dec.11 at 15:34
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    I am indeed amazed why this “Unorganized Sector” can organize a bandh, but cannot restructure collaborate amongst themselves into a cost economic, professional, farmer friendly, 21st Century Indian Retail Giant. Our government needs to work toward this rather than just allow FDI and sit down.
    I dont think we need foreign “technology” in SCM. We Indians are known for our cost effectiveness.

    Thank You for this article.

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  • 2011.Dec.09 at 13:30
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    Mr.Swami,

    This is Sankaranarayanan, an Indian, working in Dubai, UAE. Kindly explain as to why we should allow foreign retailers in India?

    We can allow big retail giants to operate in Indian markets. But why foreign players? Big Indian giants like Ambani, Tata, Birla, TVS can be allowed to do that. This way, our resources and wealth will not go out of India while we can achieve things such as quality, cold storage, direct procurement from farmers, etc. If we allow foreign companies to operate in India, 51% of India’s resources will be gone to the other countries.
    My question is, if we can achieve the same objectives that a foreign company can achieve with Tata, Biral, Ambani and TVS, why allow a foreign company to come into India and take out 51% of Indian resources.
    If we allow only Tatas and Birlas and Ambanis in retailing, the resources will be in India only, with all the objectives achieved! Then, why foreign companies?

    Thanks and regards,

    Sankaranarayanan
    UAE Mobile No: +971-50-9599379

    Reply
  • 2011.Dec.06 at 14:37
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    Swami

    Well said.

    As an NRI living in the Gulf, I sadly wonder sometimes if the comforts that I enjoy here can ever be replicated in India. Having lived here all my life, I would at the risk of being villified, be first to say that democracy is not for all people.

    Here in the UAE where Ive lived all my life, when Carrefour first came in sometime in the 90s, some, not all, traders had to close down. These were mostly those who refused to employ good customer service, discounts in some form or the other and any other scheme that would enable the average consumer to buy more at less. I consider myself middle class so these things might not affect me a lot, but after the advent of the retail revolution in this region brought on by companies by Lulu (incidentally owned by a Keralite), Carrefour et al, it is the lower segment of the population, which is overwhelmingly from the Indian subcontinent, that has benefited most.

    BTW, fortuitously, your captcha reads SEZ8. I figure one way to keep the traders at bay would be to allow foreign retailers in SEZs or something on those lines.

    In our country however all of this is a cyclical process. The traders embolden the politicos who embolden the traders who embolden the politicos ad infinitum until the government relents and someone wins. I just wonder who though.

    JJohn

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