Monthly Archives: March 2008

Curry Powder

I have always had a tough time explaining to people outside India that there is nothing called as ‘the Indian Curry Powder’.

This link gives an apt description of why so!

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Filed under Indian Food: Some Misconceptions

Land Reforms

If any body has been even near CESP, JNU, he or she cannot miss one simple prognosis for almost all of India’s economic ills- lack of land reforms! I think Tim Besley & Robin Burgess definitely did not miss it. In a very interesting article, they undertake the task of econometrically investigating the relationship between land reforms, poverty and growth in India. They find a robust link between land reform and poverty reduction. However, they argue that a closer scrutiny reveals that, in an Indian context, this is due primarily to land reforms that change the terms of land contracts rather than actually redistributing land.
Some points worth noting:

  1. In an IV regression, they find that Congress and soft left decrease the probability of enacting land reform legislation, while hard left exerts a positive influence and Hindu parties are insignificant. If you think this is a cudos for left governments, note that the overall positive influence of hard left parties seems to originate principally through strong positive effect on the passage of land ceiling legislation and the authors do not find any evidence that such land reforms reduce poverty.
  2. Land reforms have a positive significant effect on agricultural wages, though this effect primarily comes from abolition of intermediaries.
  3. Tenancy reform has negative impact on agricultural output while land consolidation has the opposite effect.

Thus, according to the authors, although the effects on poverty are likely to have been greater if large scale redistribution of land had been achieved, the results are interesting as they suggest that partial, second best reforms which mainly affect production relations in agriculture can play a significant role in reducing rural poverty. Comparing the effect of land reforms on poverty with effect of changes in per capita income, the authors find that implementing a land reform has a similar effect on poverty reduction to a 10 percent increase in per capita income, or around four to five years growth at all-India average growth rate over period (1958-1992).

The article also has a good summary of the kind of land reforms undertaken by various states till now.

Besley Timothy & Burgess Robin (2000), Land Reform, Poverty Reduction, and Growth: Evidence from India, The Quarterly Journal of Economics, May.

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Filed under indian economy, Uncategorized

Walmart in India-Some more thoughts

I need to qualify my conclusions in the earlier post. There is a possibility that Walmart may not be just another supermarket, where India’s new rich shop,but will also be a recourse of cheap shopping for the lower income groups who currently shop at the smaller grocery stores.

Why do I change my stance? The answer lies in the shopping behavior of an average middle class family in India. The reason they shop in the small grocery stores (kirana dukan as called in Maharashtra) is not only because it is cheap but also because most of these stores provide a credit line to their customers. You shop for a month and clear your dues at the end of the month. At least that’s how the kirana stores do business in most of the parts of my home state.

So it seems if Walmart is able to provide customers a credit line in some form or other, then it could potentially win over the customers who shop at kirana stores. There is still one problem though. Because of proximity to the customers and a personal relationship, it is easier for the kirana store to verify and monitor the credit standing of their customers. Therefore, a kirana store is able to provide credit to a customer who otherwise may find himself without any access to formal credit markets because of his income level. Walmart will have to rely on formal credit markets and still find a way to compete with the kirana stores in offering credit.

Thus, the key issue is whether Walmart will be ready to assume the credit risk to entice the common Indian consumer and change the retail market in India as it did in North America or be happy with a large market share in a still niche market. This indeed will be one of the key determinants of its success in India apart from the supply chain issues.

PS: So now you know why the supermarket on Sinhagad road in Pune closed down. It did not study its customers well. They were not only price sensitive but also credit constrained. Hence, reduction in price or other bundling strategies only worked to a certain extent. The business still remained with the kirana stores.

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Filed under India-US: Some Conundrums, indian economy