As AAP blocks retail FDI, foreign retailers' window into India shrinks

Delhi NCR is the single largest retail market in this country so the state government’s decision to ban any FDI funded stores in the national capital is sure to affect global retail biggies’ prospects in a big way. The new government of Aam Aadmi Party today wrote to the Department of Industrial Policy & Promotion saying no FDI funded retail stores would be allowed in the Capital.

AAP has merely followed its election manifesto in doing this, some would say. But this is the beginning of anarchy, some others would point out since instead of protecting jobs, this attitude may halt job creation. Whichever opinion you may subscribe to, one thing is clear - this paranoia over foreign brands and retail outlets is not entirely based on facts. Neither is it limited to the AAP, even BJP ruled states are averse to FDI in multibrand retail.

So that actually leaves a very narrow window for the Tescos, Wal-Marts and Carrefours of the world to come and explore one of the world’s fastest growing and largest retail markets.

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Arvind Singhal of Technopak says the retail FDI policy has been flawed from the very beginning. “One of the oddest points is approval is not just needed from the Centre but also from each state (before a foreign retailer can set up shop). This is most unusual because never in the past have states been given powers to decide national policy for foreign investments”.

It is interesting to note that though AAP is reversing the stated policy of its predecssesor, the Shiela Dikshit government, not a single FDI store has been opened yet in Delhi so there really is no loss of jobs or opportunities as of now. Most big malls, retail spaces are anyway situated in either nearby Gurgaon or in Noida which means in Haryana and Uttar Pradesh.

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Singhal pointed out that now when Delhi is officially out of bounds for foreign retailers, they will necessarily have to concentrate on other large retail markets like Mumbai and Bengaluru where state governments have not opposed any retail FDI till now.

So with Delhi shutting out FDI in retail, space is really shrinking for global majors. A recent story in the Times of India illustrates this. It says large swathes of north India may be shut for global super market chains - after Delhi, the new BJP government in Rajasthan may not allow these global retailers. British retailer Tesco has just signed up for entry into Indian retail after a gentle nudge from the Centre, which has been keen on attracting investments in retail. The TOI story says more than a dozen states, including Uttar Pradesh, Bihar and West Bengal, have ruled out FDI in the multi-brand retail segment already.

Outside north India, the new political contours leave only three large and prosperous states - Maharashtra, Karnataka and turmoil-hit Andhra Pradesh - all ruled by the Congress party, as potential entry points for global retailers.