Last Chance Saloon: WTO's Fate & This Week's Bali Meet

I just wanted to share the ICTSD's useful primer on the upcoming WTO meetings in Bali, Indonesia where the organization's fate as a credible negotiating forum hangs in the balance. The full report is available as a PDF file; below is the introduction to this crucial event:

Trade ministers are set to meet in the Indonesian island province of Bali from 3-6 December for the WTO’s Ninth Ministerial Conference, in a meeting that has been touted - for better or worse - as a turning point for the 159-member organisation. Yet on the eve of the conference, what will actually be on the agenda in Bali remains fluid.

Geneva-based negotiators have spent the last several months feverishly negotiating a small package of concessions [see my earlier post on it meager contents] that, if achieved, would mark the first multilateral trade deal since the WTO was formed in 1995. A deal in Bali, officials and observers alike had said throughout the year, would provide a major boost to the organisation’s credibility at what many have deemed to be a critical moment in its history. 

Days before the ministerial, however, WTO Director-General Roberto Azevêdo confirmed that, despite a “tremendous effort” on behalf of the membership and some significant advances, they had not yet agreed on a deal to present to their ministers - leaving the fate of the Bali conference hanging in the balance.

Alike five years ago, India may play the spoiler by sinking the entire deal through kowtowing to its domestic agricultural lobbies:

Chief among those is India’s demand – affirmed at a cabinet meeting in New Delhi on Thursday – for a “peace clause”, intended to give another four years to negotiators to come up with new WTO rules for farm subsidies and the prices paid for staples bought as part of government programmes to supply food to the poor.

Other participants have accused India of backing down from an agreement struck earlier in November over that peace clause and thereby putting at risk a broader deal that would set about removing red tape at borders around the world and, advocates claim, add as must as $1tn to international trade. 

Cautious optimism holds going into next week; no outcome would result in outright despair, while an outcome would result in a welcome development. Still, prospects for a wider Doha deal are remote twelve years after it began.

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LDC Currency Free-Fall: Party Like It's 1997?

I was dreaming when I wrote this; forgive me if it goes astray. But when I woke up this morning and watched the Bloomberg channel, I could have sworn it was judgment day. Having lived through the 1997 Asian financial crisis while working as a banker (of all things), I have a heightened sensitivity to currencies going berserk. Friends, I feel for the Indian artist above wanting to save the falling rupee. Aside from highly touted BRICs coming under pressure alike Brazil and India, anticipated normalization of interest rates in the United States is unleashing complications around the world. Indeed, there is a fear that we may be on the cusp of another rehash of 1997 given the prevailing uncertainty over the direction of American policy.

Or, are things really that bad?

Plunging emerging market currencies on the prospect of US stimulus tapering have stirred memories of the 1997 Asian financial crisis, but analysts doubt a similar catastrophe is in the making. "There are negative linkages (now) but I don't think that we are in a repetition of the 1990s crisis," said Jean Medecin, a member of the investment committee at the Carmignac Gestion asset manager.

While the Indian rupee has so far taken the worst beating, falling nearly 15 percent against the US dollar over the past three months, Indonesia's rupiah and the Brazilian real are down 10 percent, and the Turkish lira over 5 percent in a trend that is frightfully reminiscent of the crisis that began in Thailand in mid-1997.

Things have changed in some ways. Most especially, LDCs have far accumulated healthier foreign exchange reserves in anticipation of days like these:

Back then, investors reacted by panicking, withdrawing funds en masse, resulting in the Thai bath eventually collapsing. The phenomenon then spread like a wildfire throughout Asia, and even to Russia, with foreign capital vanishing almost with the blink of an eye.

Short of capital, emerging countries suffered acute shortages of credit, plunging them even deeper into the crisis. Fifteen years on, India's Prime Minister Manmohan Singh last week said emerging countries are now much better equipped. In 1991, India had only 15 days worth of foreign exchange reserves, he said. "Now we have reserves of six to seven months. So there is no comparison. And no question of going back to the 1991 crisis," he said.

Moreover, does intervention really work? The historical record is patchy, but that doesn't seem to stop LDCs from trying anyway:

Simon Derrick, chief currency strategist at BNY Mellon said that "letting the currency take the strain might be the smartest move for some emerging market nations". He noted that in 2008, when emerging markets last tried to stop the outflow of funds, they failed despite spending up to 20 percent of their foreign currency reserves [...]

Still, several countries have moved to defend their currencies. Brazil, which had led emerging market complaints that Western stimulus measures had resulted in the appreciation of their currencies and eroded its competitiveness, turned around, saying it would make $55 billion available to prop up the real. Turkey pledged to inject a minimum of $100 million per day, while India announced it would put $1.26 billion into the banking system by buying back long-term government bonds, although it said the move was aimed at making more credit available to boost economic growth rather than defending the rupee.

The bottom line is that LDCs are better prepared this around to weather currency shocks. Still, there may be some validity to assertions that blaming economic woes on American economic machinations hide a number of structural faults at home alike gaping current account deficits. (Not that the US is free of those, mind you.)

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Obstacles to the Global Mobile Banking Era

In many parts of the developing world, mobile banking or "m-banking" has largely supplanted conventional banking as the primary interface of customers with the financial system. For starters, many of the poor cannot meet minimums to open bank accounts. And, even if they did, bank branches are often sparse outside of urban centres. (Some m-banking heavy countries have generations of customers who've never even really used bank branches.) Just as cell phones have become far more plentiful than land lines in LDCs, though, people have needs for financial services as well as communications. Hence the ongoing popularity of using cell phones as "mobile wallets" to make purchases, pay off loans, receive salaries and so forth. As such, they can be quite handy in countries where financial services are sparsely available.

Truth be told, though, the diffusion of m-banking services has not been so swift outside of innovative countries in this space alike the Philippines in Southeast Asia, India in South Asia and Kenya in Africa. Just in time, a batch of three new articles from Global Briefing, the online publication from Commonwealth nations, tell us not only about their prospects but also why their diffusion has been slow.

First, there are competitive pressures from traditional banking institutions. Especially in the developed world, traditional bricks-and-mortar banks are afraid about what virtualization of money may do to their income. That is, what would m-banking do to their addiction to fees, fees, fees in a world where consumer choice is more unfettered in sending and receiving money across borders? There may even be broad systemic implications for the international monetary system should virtual currencies gain acceptance and replace national ones. Virtual money supplanting the dollar? I'm all in favour of it! Still, American authorities may not be so keen given the implications of such a shift...

So M-payments are a small part of the financial universe, but they are growing. In terms of the number of transactions, they are mushrooming fastest in emerging economies, although, inevitably, there is more growth in the value of transactions in developed economies. But it is not the mere expansion of transactions that is getting banks and governments hot under the collar about M-payments. What is driving the debate is the potential that mobile money has for changing the way that money works. Consider this: mobile communications are an alternative infrastructure, controlled not by private financial companies, or central banks, or governments, but to a large extent by the people who use them [...] The financial impact may only just be gathering momentum. Could it be that mobile communications will become the medium for new forms of unregulated money, beyond the reach of conventional banking and conventional financial regulation?

If that were to happen, the way the world uses and thinks about money would change beyond recognition. Bank regulation, instead of being a topic of urgent debate, would become an irrelevance. Economic management through monetary policy – the control of interest rates and the issuance of money – would be a relic of the past. Capital controls would disappear entirely. There would be no more offshore banking havens, because everything financial would effectively be offshore. Both risk and profit would be in the hands of individuals, along with whichever companies manage to grab a piece of the new commercial action. Far fetched? In fact, there are many who would welcome such a zero-regulation financial world, in which there are no safety nets and no taxpayer-funded bank bail-outs.

Second, aside from prospects for revolutionizing how the international monetary system works, less drastic regulatory concerns abound. In particular big, bad America's insistence on stringent anti-money laundering and counter-terrorist finance (AML/CTF, not AML/CFT as the article mentions, actually) is saddling consumers worldwide with additional costs:

Given modern technologies, it is hard to believe that sending money costs nine per cent on average and, in some south-south corridors, 15-20 per cent of the principal amount remitted. The fee structure is also highly regressive – the smaller the remittance, the higher the fee. International regulations, especially anti-money laundering and countering the financing of terror (AML/CFT) regulations, are increasing the cost of using mobile phone technology and internet to send money across international borders. These regulations are also preventing global banks from operating bank accounts of money transfer companies, thus contributing to higher costs. Exclusive partnership agreements between national post offices and major money transfer companies are increasing the market power of the latter and stifling competition from new players. Capital controls are preventing outward remittances from many developing countries. And exchange controls, together with dual exchange rates, are discouraging remittances in many countries.

Third, then, is the rather slow uptake of virtual currencies. At present, none can yet fulfil the traditional functions of money: store of value--no one is sure if any of these currencies are going to be around in a few years' time; medium of exchange--even fewer still are accepted by an appreciable user base; and unit of account--valuations of these virtual currencies remains...irregular. So, we still need a trustworthy virtual currency that many will be willing to use and hold:

The next step in the mobile money revolution is the emergence of virtual currencies. At present, mobile wallets use established currencies but parallel digital currencies are now being introduced that can be traded across any digital platform on a peer-to-peer basis. The first – and best known – was Bitcoin, which, unlike alternatives, is not restricted to a single website, nor used solely in gaming. The currency is created by ‘Bitcoin mining’, where rival servers compete to solve maths tests, the complexity of which regulates the supply. The winner gains the virtual money created and it can enter the market, in much the same way that currency created by a central bank is distributed.

Bitcoin has attracted criticism, not least because its founders are unknown, its market value volatile and it has proved attractive to drug dealers. Each Bitcoin was valued at $15 at the start of this year but quickly rose to more than $100 on investor interest. In six hours in April, the exchange rate plummeted from $266 to $76 then rebounded to $160. Other convertible virtual currencies have followed, including Ripple. Developer OpenCoin has created a fixed number of 100 billion Ripples, most of which it will give away for free. It hopes limiting the supply will increase the currency value over time, thus making the Ripples it retains worth a fortune.

The more I read about it, the more I believe that the emergence of m-banking is a necessary step in moving further into a better, post-American world. Escaping from the shackles of their junky national currency which causes American busybodies to stifle innovation over "security" concerns post-9/11 involves the development of a better alternative. In many parts of the developing world, it is already emerging with m-banking. The obstacles are not insurmountable if innovation progresses at the rate it has in the developing world, leaving America far, far, behind in the sophistication of such services.

As always, necessity is the mother of invention.

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Lord Patten, 'Fat Pang', on the 21st 'Asian Century'

Though not always, expatriates often develop piercing insights into the often strange political economy of Asian nations as outsiders looking in. Lord Christopher Patten of Barnes should be familiar to all scholars of Asia as the last British governor of Hong Kong. He remains controversial to this day for, in so many words, attempting to enshrine democratic processes in the colony prior to the 1997 handover. Jaded Hong Kong residents even grew a fondness for him--well, at least outside the business community--for his instincts as a retail politician did not go away when appointed for the post. From Andrew Craig-Bennett's superb and much-recommended history of Hong Kong where he traces the backhanded nickname of endearment "Fat Pang":

Patten continued to behave differently to his predecessors; although, unlike his predecesors for many generations, he did not speak either Mandarin or Cantonese, he used to go for informal strolls in the streets, chatting to people and pressing the flesh. In fact, he was behaving like the seasoned democratic politician that he actually was. Trouble was, Hong Kong had never seen such an animal before. As my Taipan remarked, "When will he stop kissing babies in Mong Kok? Doesn't he realise he doesn't have to get elected in this job?" 

Patten also used to make political speeches at the drop of a hat - no mere cutter of ribbons with a few kind words, like earlier Governors, he would deliver a twenty minute oration and - people listened. He became the first and last Governor to acquire a Chinese nickname - Fat Pang - 肥彭 (Chinese nicknames were sought after amongst the gweilo [foreign] community because they were only bestowed (behind your back) if you deserved one, for good or ill, and it was usually very hard to find out what yours was.)

So it is that he retained that Tory British predilection of adopting strong democratic stances as governor when his country of course used to be the world's foremost imperialist and slaver. Needless to say, attempting to instil democracy in a colony that would soon be handed over to China did not go so well with the PRC. What's more, his actions have undoubtedly caused ongoing headaches for the Chinese leadership insofar as several opposition parties now responsible for organizing mass protests against the mainland and so forth sharpened their teeth during Patten's epoch-ending stint:

Legco [legislative committee--which retains its role post-handover] debates became very different; long diligently televised, they started to be watched. The subject of debate moved away from the usual municipal trivia and started to take on a broader view. Patten was a veteran of the House of Commons; Hong Kong's political class watched and learned.

The first group to take a serious dislike to Fat Pang was the business community. Legco was not meant to be a debating chamber; it was meant to be a rubber stamp for [commercially friendly] decisions arrived at over lunch. All this political activity had an effect which I must assume (since he is still active in politics, and has not settled down to write his memoirs yet) Patten intended it to have. Hong Kong developed political parties. Strictly speaking, there had been parties since soon after WW2, but with one exception they were informal and had little influence.

Very interesting stuff. In line with this bit of Patten-era Hong Kong history, RBS has an unsurprisingly rollicking interview with the man himself on the so-called Asian Century. To no one's real surprise given his advocacy as Hong Kong governor, he believes that how far the likes of China and India will go depends on the extent they internalize democratic values (especially China):

Yet Chinese consumption remains low as a proportion of GDP, as does domestic investment. If China is to make its growth sustainable, it must change its model from investment in low-cost manufacturing to investment in the domestic economy and personal consumption. This will mean offering more social entitlement programmes and investing more in education and health. Sustainable growth also requires political reform, an area in which the Chinese leadership has had to tread carefully. “The Chinese often claim that they can do things to the economy without having an effect on politics,” says Lord Patten. “I rather doubt that myself and so, clearly, do some Chinese leaders.”

Like me, he believes that prospects of Chinese global preponderance are wide of the mark:

Next year will see a change in China’s political guard. Xi Jinping is expected to take over the presidency from Hu Jintao, but comparatively little is known about the likely new leader’s agenda. There is an ongoing debate within China between the party hardliners and some of the modernisers.

“The hardliners’ argument is that if the party continues to allow the privatisation of state and enterprises, along with more foreign direct investment, it will sooner or later lose control over the state,” explains Lord Patten. “The modernisers say that unless they continue to stand back from the state and enterprises, and encourage the private sector, the economy won’t grow quite so fast and won’t create so many jobs, which would result in the party losing control. I think the Chinese dilemma is that both those propositions are correct.”

In light of these challenges, he questions the claim that the 21st century belongs to China. “It’s certainly the case that America and Europe won’t dominate the global agenda in the next few years in the way they have in the past century,” he says. “But I don’t think that we’re going to live in a Chinese century. It may be one in which the Chinese and Indians, like the Japanese, refuse to define modernity in entirely western terms, but I don’t believe that we’ve seen the end of western influence.”

Good stuff; and he's probably on target.

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Ramchandra Guha on Why London Outdoes NY

With all due respect to our readers from the Big Apple, I still hold that London is the world's capital for reasons both fair and foul. Quantitatively speaking, you can cite trading volumes in various financial markets to argue that London truly deserves the title of "the world's financial capital" unlike what you keep hearing on CNBC. It is also considered more open to all comers regardless of race, colour, or creed (unless you're an intolerant sort like Captain Hook). Throw in the astonishing buoyancy of its real estate market even as economic times are difficult--not something that can necessarily be said of New York--and the quantitative evidence for London's supremacy is overwhelming.

But, there are also qualitative aspects to this designation. Ramchandra Guha, the renowned Indian historian who succeeded Niall Ferguson at our LSE IDEAS as the Philippe Romain chair (see his recent WSJ interview as well), serves up a fond reminisce of his year in London that also bolsters the case that it is indeed the world's capital:

New Yorkers may contest this judgement, but despite the many attractions of the Big Apple, London still holds the edge. For one thing, the architecture is more appealing. The buildings are elegant, and on the human scale. They speak to you in a way that skyscrapers cannot [I can only assume he did not spend a lot of tie in the City of London!]. The city’s crescents and squares lend it an eccentric charm that the straightforward grid of Manhattan does not contain. And there are many more parks in London, as well as water bodies of various shapes and sizes.

London is also, in social terms, at once more diverse and more integrated than New York. On its streets and subways, Arabic and Hindi jostle with English and French (and, increasingly, Polish). New York, by contrast, is essentially monolingual. (To be sure, first-generation immigrants speak their language at home, but on the streets at least it is mostly all English). At the same time, in London, blacks and whites and coloureds are less rigidly separated by social class or place of residence. As a result, there are more mixed groups in the parks and restaurants of London than in the parks and restaurants of Manhattan.

To be sure, the academically inclined also have huge benefits by virtue of its unique place. He mentions the absolute wealth of speakers who would come on campus to speak. While the relatively younger LSE is not quite up there with Cambridge and Oxford in the prestige sweepstakes, the sheer volume of top-class speakers from academia, business, civil society and government who would come to speak is astounding since they inevitably come to (obviously English-speaking) London to be heard if they are in Europe:

The LSE has, however, one inestimable advantage over those other places of learning — it is located in a city in the centre of the universe, and thus regularly visited by scholars from Asia and Africa, North and South America, and of course Continental Europe. Its location and its attractions mean that a Mozambiquan historian wishing to travel to Brazil is very likely to route his journey via London. So too the Indian sociologist travelling to San Francisco or the American political scientist studying the Congo.

Making use of this strategic location, the LSE showcases a more impressive series of public talks than any other institution in the world. Harvard or Columbia might have specialists from other universities coming in for departmental seminars, and occasional public lectures for a wider audience. But the LSE has, during term time, as many as four different public lectures every day. The student, professor and alert private citizen are all spoilt for choice. Thus, on the same evening, one might have Paul Krugman speaking in the Sheikh Zayed Theatre, the lawyer who attended on Nelson Mandela speaking in the Old Theatre, and an expert on Egypt speaking at the Hong Kong Theatre. 

Geographically speaking, the LSE's place at the centre of London which is in turn the "centre of the universe" cannot be bettered. Heck, my very own boss hosted John McCain prior to the US elections. As I like to point out, though, you're not out of luck if you don't happen to be in central London since most of the events are recorded and podcasts if not videos are available online. Enjoy...but don't expect our NYU colleagues or others from Noo Yawk to offer the same sort of amenities for reasons Ramchandra Guha so eloquently makes!

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India Isn't a Superpower (and May Never Be)

It's once again time to feature an LSE IDEAS publication as I sometimes do. Although hosting Niall Ferguson was something of an event for us--he is in many respects a one-man travelling circus of his own--we now have another Phillip Roman chairholder in Ramachandra Guha. Although he is somewhat less well-known to Western audiences than the aforementioned economic historian, Guha nevertheless brings some unique perspectives on modern India. For a research centre that purportedly concerns itself with grand strategy, IDEAS is of course particularly interested in what's up with China and India as well as what role they will play in the future. So, just as we had US-China relations historian Chen Jian as the Phillip Roman chair a few years back, now we have Ramachandra Guha.He's been making the most of his time at LSE IDEAS by drawing much favourable attention to his, well, ideas [1, 2].

Once more, the press blurb describes the contents of our latest special report well by considering India's fitness for superpowerdom if there ever was such a qualification [!?]:

The authors argue that despite India’s rising power and wealth it remains shackled by weaknesses which include corruption and poor leadership, extreme social divisions, internal security threats and religious extremism.

The report – India: the next superpower? – features essays by nine experts which examine the nation’s economy, defence, government, culture, environment and society. While they acknowledge the country’s formidable achievements in fostering democracy, growth and cultural dynamism, they generally agree that its structural weaknesses mean that it cannot yet call itself a superpower or be considered a full counterweight to the influence of China (as some in the West have hoped).

And the headliner as suggested above is the contribution of Ramachandra Guha:

Some of the report’s authors believe that India should not even aspire to be a superpower while it has so many internal problems unresolved...[Guha] lists seven reasons why India will not become a superpower; armed unrest from the Maoist Naxalite movement, extreme Hindu religious chauvinism, the degraded quality of leadership, a trivializing media, over-consumption of resources and incoherent policy caused by political coalitions. He concludes: “We need to repair, one by one, the institutions that have safeguarded our unity amidst diversity, and to forge the new institutions that can help us. It will be hard, patient, slow work.” 

This publication should be of interest not only to India specialists but for those who are seeking to know more about international affairs in general. There are individual chapters which are also interesting in their own right aside from that of Guha available as PDFs on our website. 

Happy reading!

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Stephen Roach: It's Still Bet On China, Not India

Rumours of China's imminent demise are much exaggerated (see Roubini on the overinvestment thesis, for instance)--or so says Stephen Roach (inveterate PRC fan). In a new al-Jazeera op-ed, he addresses the alleged seeds of China's downfall alike excess real estate investment (the PRC's subprime moment?) and excessive lending of state banks by official diktat to marginal projects:

[I]t is a serious exaggeration to claim, as many do today, that the Chinese economy is one massive real-estate bubble. Yes, total fixed investment is approaching an unprecedented 50 per cent of GDP, but residential and non-residential real estate, combined, accounts for only 15-20 per cent of that - no more than 10 per cent of the overall economy. In terms of floor space, residential construction accounts for half of China's real-estate investment. Identifying the share of residential real estate that goes to private developers in the dozen or so first-tier cities (which account for most of the Chinese property market's fizz) suggests that less than 1 per cent of GDP would be at risk in the event of a housing-market collapse - not exactly a recipe for a hard landing.

As for Chinese banks, the main problem appears to be exposure to ballooning local-government debt, which, according to the government, totalled $1.7tn (roughly 30 per cent of GDP) at the end of 2010. Approximately half of this debt was on their books prior to the crisis.

Some of the new debt that resulted from the stimulus could well end up being impaired, but ongoing urbanisation - around 15-20 million people per year move to cities - provides enormous support on the demand side for investment in infrastructure development and residential and commercial construction. That tempers the risks to credit quality and, along with relatively low loan-to-deposit ratios of around 65 per cent, should cushion the Chinese banking system.

Contrast China to India, which (yawn) Roach again emphasizes has a more serious structural bias towards an external deficit (alongside its still-marginal infrastructure):

India is more problematic. As the only economy in Asia with a current-account deficit, its external funding problems can hardly be taken lightly. Like China, India's economic-growth momentum is ebbing. But unlike China, the downshift is more pronounced - GDP growth fell through the 7 per cent threshold in the third calendar-year quarter of 2011, and annual industrial output actually fell by 5.1 per cent in October.

But the real problem is that, in contrast to China, Indian authorities have far less policy leeway. For starters, the rupee is in near free-fall. That means that the Reserve Bank of India - which has hiked its benchmark policy rate 13 times since the start of 2010 to deal with a still-serious inflation problem - can ill afford to ease monetary policy. Moreover, an outsize consolidated government budget deficit of around 9 per cent of GDP limits India’s fiscal-policy discretion.

Still, it will take a pretty serious external shock to knock either one of these off-track in a significant way in 2012:

While China is in better shape than India, neither economy is likely to implode on its own. It would take another shock to trigger a hard landing in Asia.

One obvious possibility today would be a disruptive break-up of the European Monetary Union. In that case, both China and India, like most of the world's economies, could find themselves in serious difficulty - with an outright contraction of Chinese exports, as in late 2008 and early 2009, and heightened external funding pressures for India.

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Indian Retail: Mom & Pop 1, Wal-Mart 0

It's somewhat unimaginable for those in Britain for the corner store to politically outmaneuver the likes of mighty retailing giant Tesco, or for those in America to have the Kwik-E-Mart outfox the likes of massive Wal-Mart. Well, in India at least, it seems the little guys have outdone the international retailers at the lobbying game. For, the government has just shelved plans to allow stores to stock more variegated "multibrand" fare that would have paved the way for international retailers alike Tesco, Wal-Mart and Carrefour to begin plying their trade on a larger scale in India.

Alike in many other Asian countries, the Indian retail scene is highly fragmented with a multitude of small retailers or the archetypal mom-and-pop shops. Selection is limited by national laws discouraging "multibrand" retailers or your conventional supermarket fare. Aside from the inconvenience of multi-stop shopping, prices are also higher for obvious reasons:

The enormity of the Indian retail market has dazzled major corporations: Consulting firm A.T. Kearney, which has been polling companies about global-expansion aspirations for more than a dozen years, said India now ranks only below China on their priority lists, ahead of markets like Brazil and the U.S.

But public opposition to the move in India remains rife. Radha Krishna Store in Bengali Market in central Delhi is typical of the mom-and-pop stores the Indian government wants to protect from big-box retailers like Wal-Mart. The small store's shelves are stacked with items as diverse as shampoos, cooking oils, diapers and milk. Kamlesh Gupta and her husband have been operating the store for 25 years.

If chains like Wal-Mart and Tesco are permitted to operate in India, "everything will be over," Mrs. Gupta said. "If they sell goods cheaper than us, who will come here? Already, we have lost 20% of our business since Big Bazaar and Reliance [local chains] started operating in the last two years," she said, referring to two Indian retailers.

To protect stores like these, Uma Bharti, a leader of the main opposition party, the right-of-center Bharatiya Janata Party, had threatened that she would personally set fire to any Wal-Mart stores if they were allowed to enter India. She said she was prepared to go to prison for it. This party's voting constituency includes small retailers.

The political opposition to loosening the foreign-investment rules ensures that, for now, Wal-Mart's only way to grab a piece of the lucrative market is through a partnership with Bharti Enterprises Ltd. to operate wholesale-style "cash and carry" shops selling bulk items to small-business owners. The joint venture only had nine stores as of the end of October, a minuscule presence for a retail giant with more than 9,000 shops in 28 countries.

Forcing supermarket chains to break up their advantages--economies of scale--to deal with mom-and-pop shops sort of defeats the entire purpose of having them around. I guess their belief is that gaining a foothold is better than having none at all. It's also scary to think that a politician of one of India's main political parties threatens to burn Wal-Mart superstores if they're ever put up. Talk about militancy.

What are the chances for retail liberalization now?

The Indian government's decision to put the proposal for multibrand retailers on ice came also as a blow to Tesco, which along with other British businesses has advocated changing the regulations. Tesco has been unable to open stand-alone retail stores in India and instead operates through a franchise deal with Tata Group unit Trent. "The decision to defer [foreign direct investment] is a missed opportunity for Indian producers, farmers and consumers," Tesco said.

Saloni Nangia, senior vice president and head of retail and consumer goods at Technopak, a consulting firm based in New Delhi, is hopeful that the decision to allow foreign retailers to open supermarkets in India might still happen.

One hopes it will eventually happen for the consumer's benefit, but you never know. Lest you think it's an open-and-shut case of Western imperialism at work here, remember that Indian farmers also lose out from this situation in a major way due to spectacular inefficiencies:

The global chains were likely to invest in trucking and distribution systems in India, where government estimates show 40 percent of fruit and vegetables rot before being sold because of the lack of cold-storage facilities and poor transport infrastructure. Farmers will have “assured business” if foreign companies were allowed to invest in multibrand retail, said Pratichee Kapoor, associate director for retail at Technopak Advisors Pvt...

Rajan Bharti Mittal, managing director of Wal-Mart’s wholesale partner Bharti Enterprises, in a statement yesterday called the government’s reversal an “unfortunate” decision. The policy change would have brought “farmers better realization for their produce as well as better prices for the consumer,” he said.

Let the consumers decide for themselves where to shop, I say. 40% wastage due to poor retail infrastructure is really, really terrible.

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Attribute Indian GP Success to No Gov't Involvement

Well here's something that might gladden the hearts of Cato or Mises Institute haters of all that is the public sector. I have just finished watching the inaugural Indian Grand Prix at the brand-new Buddh International Circuit, and I must say that the facilities look world-class. To observers of Indian sports hosting, the F1 race represents a remarkable turnaround from the Commonwealth Games fiasco of only a few months ago with the latters' collapsing structures, unfinished stadiums, and a squalid athletes' village.

It is perhaps prescient that in that previous post on the Commonwealth Games, I ventured that the forthcoming Indian Grand Prix would not be allowed to be held in such conditions by F1 impresario Bernie Ecclestone, and sure enough, the race was up to snuff. The reason given for hosting success this time around is, yes, freezing out public sector infrastructure work with its endemic corruption, shoddy building standards and so forth:

Another factor is that, unlike the Government-funded Games, the money to build the Buddh International Circuit and stage the grand prix has all come from private investment. Industrial conglomerate The Jaypee Group [JPSI or the race organizers] are behind rejuvenating a deprived area they are calling "Sports City" to the tune of £250million.

'It's very significant something like this has come up to showcase India,' [Indian Motor Sports Federation President Vicky] Chandhok added. 'It's not about Formula One, it's not about motorsport, India has never hosted something on this magnitude ever.

It further turns out that Indian government officials were not feted at the F1 confabulation as they usually are at other sporting events where they are treated like the new sahib (or foreign master). In a fit of pique, the sports minister went on Twitter to register his dismay at being shut out altogether:

The [current government] was left out of the megaeyeball F1 race frame, starkly contrasting with jamborees like the ICC Cricket World Cup and the Commonwealth Games, where political class rushed to tap the popularity.

The event featuring global icons was so curt to the political spectrum that sports minister Ajay Maken vented out with a sarcastic tweet: "When F1 is flagged off, as Sports Minister, I am laying foundation stone for Rs 5 crore synthetic track at P T Usha's academy in Koyilandi near Calicut."

Further government dismay at being shut out is shown by removing favourable tax treatments usually afforded to cricket and the aforementioned Commonwealth Games. Murali Sashidharan offers some fine commentary on government double standards with regard to F1 being treated as an "elite" sport unworthy of public attention. It's like the bad old days of the "licence Raj" being brought back just to harass F1:

The complaints coming up about the race is that the government is making it harder than normal in various departments, namely the tax and customs department. Unlike this year’s cricket World Cup or last year’s CWG, which were given ‘ national importance’ status by the sports ministry, the Indian GP has not been granted the same gradation and hence JPSI are expected to pay the duty for stuff like F&B, tyres, engine which will be imported for the race. The value floating around for this is ranging from Rs. 150cr to Rs. 600cr.

The tax row centred on the legislation which would make teams and driver pay a tax bill for portion of their income, potentially taking 1/19th of their income because India is one of the 19 races on the calendar. The government exempted this year’s cricket World Cup from income tax and also granted special tax exemption on income to residents and non-residents alike gained from international sporting events in India in 2006, when the country hosted the ICC Champions Trophy cricket tournament.

To be sure, other new hosting nations (i.e., China, Singapore, South Korea, Turkey, Bahrain, Abu Dhabi) have successfully held largely government-organized races in recent years. It may be a reflection of their respective political economies how private sector elites relate to those in the public sector. In turn these relationships affect the suitability of building a racetrack and hosting an F1 event. Other than India, the other major race without major government involvement is the British GP at Silverstone. There must be a lesson somewhere here.

At any rate, I must extend my hearty congratulations to the organizers of the inaugural Indian GP for putting on a superb show.

UPDATE: Oops, it looks like the other organizers of the (cancelled) Metallica concert did not fare so well. For whom the bell tolls, time marches on.

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