Delhi: AAP shuts the door on FDI in multi-brand retail sector

The Delhi government has officially shut its doors to foreign owned supermarket groups from setting up shop in the Capital, creating fresh uncertainty for a sector that had only last month received its first investment proposal after a high stakes policy change 15 months ago. The Aam Aadmi Party-headed government has written to the Department of Industrial Policy & Promotion (DIPP) seeking to withdraw its permission to allow FDI in multi-brand retail in the state, once again underscoring political risks from administrative changes to investments in the sector. Chief Minister Arvind Kejriwal justified the government’s decision, saying foreign participation in the supermarkets sector would exacerbate the city’s unemployment problem. He said that, FDI provides a wide range of choice to consumers, but it has been seen in several countries that it has led to unemployment. There is a huge unemployment problem in Delhi. Delhi doesn’t want to increase it further.

          Kejriwal said he was not against FDI, but it had to be decided on a sector-by-sector basis and that he would meet industrialists to discuss further changes. The government’s actions, although along expected lines because it was a key item in AAP’s election manifesto, could dissuade foreign supermarket chains waiting on the sidelines from committing investments. The AAP government’s decision could also put pressure on BJP to make its opposition to FDI in multi-brand retail even shriller. Industry bodies CII and FICCI said they were disappointed with the Delhi government’s decision. The Arvind Kejriwal-led AAP had in its manifesto opposed the policy of allowing FDI in multi brand retail, citing its impact on retail trade.

          Under the current policy, FDI-funded multi brand stores can be set up only in states that expressly allow such investment. Only 12 states and union territories, largely Congress-ruled states including Delhi, have given their consent to the policy allowing up to 51% foreign investment in Indian supermarket chains.

          Last month, the UK’s biggest supermarkets group Tesco became the first company to announce investment in the sector, ending an embarrassingly long wait for the policy change to bear fruit. The UPA government had opened the sector to foreign investment at great risk to its very survival. Tesco will invest $100 million in partnership with Tata Group-owned Trent, limiting its presence to Maharashtra and Karnataka, both Congress-ruled states. Elections in Maharashtra are likely in December this year, but the Congress government in Karnataka has four years to demit office. Walmart has already said it would not open retail stores in India. A prominent mall developer in the National Capital Region said the Delhi government’s decision does not mean much on the ground.