But about 95 per cent of retail business still happens in the unorganised sector, because of which the Parliament views India as the ‘land of retail democracy’.

In a recent contribution to this forum, Dr Rajiv Kumar, the Secretary-General of India’s oldest industry association (the Federation of Indian Chambers of Commerce and Industry) and a former Director of the Indian Council for Research on International Economic Relations, blames ‘retail Luddites’ for the knockback. He concludes his argument with the plea that ‘a public case has to be built and propagated strongly to push back the Luddites’. But by arguing that India’s decision is driven by those who equate FDI in the retail sector with the East India Company’s arrival in 1612, Dr Kumar is fighting his case against straw men. He is overlooking the pragmatic considerations that may have driven the decision to reject such legislation — which has far-reaching implications and was hastily introduced with little preparation and hardly any public engagement.

Dr Kumar bemoans that ‘a mere 10 million owners of traditional and self-organised retail and wholesale trade have held a country of 1.2 billion people to ransom and thwarted progress… by evoking the fear of 40 million people associated with the sector’, and that this interest group is ‘yet to explain how an expansion in business from US$450 billion to an expected US$840 billion’ will result in the displacement of ‘mom and pop’ stores. Note that according to the PSCC about 200 million people depend on the retail sector. In any case, according to Dr Kumar, this ‘unfortunate episode’ is another instance of the triumph of ‘untruth’, fuelled by ignorance and competitive populism. But his argument is flawed. It is based on an erroneous understanding of the relationship between regulatory efficiency and size of an organisation. More importantly, it overlooks distributional concerns discussed below.

No one denies that the pie is going to expand. At stake are the shares. The ‘Luddites’ draw attention to the entertainment industry, for example, where the entry of mutliplex cinemas completely eliminated single-screen neighbourhood cinemas and crowded out space for alternative cinema. They also draw attention to the fact that soft-drink giants like Pepsi and Coca Cola monopolised their market very quickly. The PSCC also seems to have anticipated the ‘Luddites’ when it observed that global retail giants will undoubtedly resort to predatory pricing to eliminate local competitors.

So, while Dr Kumar’s argument is driven by the belief that FDI in retail will increase total welfare, opponents of the policy are concerned about distributional issues. These two groups are essentially talking past each other, possibly because Dr Kumar’s camp overlooks four distributional problems that agitate the ‘Luddites’.

First, since the organised sector (and companies with longstanding global experience in particular) uses manpower far more efficiently, one is not sure if the total income of those employed by the retail giants would be more than the income of displaced entrepreneurs and their employees.

Second, even if it could be shown that the first doubt can be resolved favourably, it is difficult to deny that those who lose jobs would be relatively older, self-employed and have family responsibilities, and lack English-language skills. But new jobs would go to those who can speak some English, who have urban exposure and who are young. The government and retail giants have no plans for retraining and re-employing those who lose jobs.

Third, the entry of retail giants will transfer wealth to their shareholders, and away from relatively poor retailers.

Fourth, once established, retail giants will dictate upstream and downstream prices and transfer wealth to the shareholders of these companies from consumers and small-scale suppliers.

So, the ‘Luddites’ fear that FDI in the retail sector will not only reduce their share in the growing pie but will also leave them with a smaller absolute share. (It bears noting that they are also opposed to domestic retail giants.) Unless the distributional concerns of this demographic are addressed it would be unreasonable to expect a policy reversal until after the 2014 general election, because of state elections in Uttar Pradesh in 2012, and Madhya Pradesh in 2013.

Vikas Kumar is Assistant Professor at Azim Premji University, Bangalore.