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.