Not just Wal-Mart: AAP‘s FDI move may worry all investors

R JagannathanFirstpost.com

The Delhi government’s decision to withdraw permission for foreign multi-brand retailers to set up shop in the city-state follows from the Aam Aadmi Party’s (AAP's) manifesto. So it should have come as no surprise.

However, we should not lose any sleep over the fact that Arvind Kejriwal has put up a no-entry sign for Wal-Mart’s passage to India. Rather, we should be worried about the signals it sends for all investment in India - foreign and domestic.

Let's be clear. Foreign direct investment (FDI) in retail was never going to be a huge one-shot booster dose for the economy – despite the positive signals it sends to foreign investors. ItS short-term benefits have also been overblown. It would help, we were told, India end inefficiencies in the food supply chain connecting farm to fork. But is this something only Wal-Mart can do? Even big domestic retailers can do the same.A simple fact that is almost forgotten in the pro- and anti-FDI in retail debate is this: there was never any ban on Wal-Mart or other big retailers from creating a cold chain or the back-end infrastructure for big retailing. That was allowed even earlier, as is evident from the several cash-and-carry retailers (Metro, Tesco, etc) already in existence. What changed with the FDI policy of 2013 was that these retailers would be allowed to set up front-end stores – thus helping them improve their margins. Setting up the back end is hardly as profitable as setting up the shop itself. It cuts out one more middleman in the chain. This is what Kejriwal has – possibly temporarily - snatched away.

In fact, what will be worrying the Wal-Marts of the world is not the mere prospect of being barred from Delhi – they have been barred from several opposition states anyway – but what the next general election will bring in terms of shifts in politics and policy.

Related stories

R Jagannathan

Editor-in-Chief|Web18

• 
  Why India is still far away from permanent UNSC membership?
• 
  Why energy & subsidy reforms are more important than GST?
• 
  Why payments, small banks will revolutionise banking system

The truth is even though the BJP has been formally against FDI in retail, this obstructionist policy was adopted merely for political reasons and to put a spoke in the Congress's belated efforts to reinvent itself as a reformist party. The BJP has transcended its old bania-kirana-shop roots and is now also a party of mall-hopping middle classes in the urban belt of India. There was every possibility of the BJP reversing its anti-FDI stand if it came to power under Modi. The policy would have received minor tweaks and then put in motion.

However, one can no longer presume a cakewalk for the BJP in the Lok Sabha elections, and a weak BJP coalition government or, god forbid, a hydra-headed third front, would be unable to make much change to the FDI policy.It is the rise of Kejriwal and AAP that is a downer for FDI in retail, and not the Delhi decision itself. Wal-Mart will be worrying more about the politics than the policy right now.

And Wal-mart may not be the only one. All foreign and domestic investors will be in wait-and-watch mode, now that the results of May 2014 are no longer that certain. By putting up the no-entry sign for big foreign retail, Kejriwal has merely confirmed the worst fears of investors.

The writer is editor-in-chief, digital and publishing, Network18 Group