India's leaders say farmers will win big from last week's opening of the nation's retail market to multinationals. But to truly help farmers, India may need an entirely different reform.
As reported Friday by the New York Times, state laws in India "forbid retailers from buying directly from farmers without going through designated wholesale markets or paying a tax to those markets."
The post on the Times's blog India Ink presents this as a case of regulatory capture:
While the national government has been asking states to amend those laws to allow for direct purchase of produce from farms, most have not done so because the traders who control the wholesale markets have significant political clout – they are also a big constituency of the opposition Bharatiya Janata Party, which opposes allowing foreign retailers into India.
The farm advocate quoted by the Times, Ajay Vir Jakhar, has been pushing for yet another state mandate, this one in the other direction: that large retailers be required to buy "as much as three quarters" of their produce directly from farmers.
It's easy for Americans to misunderstand the politics of poverty behind these India reforms. In the United States, the growth of Walmart is sometimes seen as a victory for poor consumers over middle-class shop owners. But in India, as Time reported this week, Walmart and Tesco will actually be competing with small shops by going upmarket to lure middle-class shoppers:
The Indian retail market is different. Yes, they may be locally owned, but those small retailers keep their prices low because they use only the cheapest possible casual labor and invest next to nothing in their stores. Prices cannot get any lower; in India, Walmart can compete only by offering higher prices — and better quality to attract the middle-class consumers who are able to pay.
India's huge retail market is complicated. But organizations looking for the impact of these reforms on India's poor should be paying attention not just to who'll be buying things from Walmart India, but who'll be selling things to it.