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.