The idea of economic reform, empowerment, equality of opportunity is being knocked out by corruption, bureaucracy, vote-bank politics and lack of political motivation in the country. The policy framework with respect to investment and promotion of business in India has become extremely unfavourable as a result of which investor confidence has dipped to a new low. The most recent addition to the pile of retrogressive policies is the decision of newly elected government in Delhi to withdraw the assent given by the previous ruling government in Delhi of allowing Foreign Direct Investment (“FDI”) in multibrand retail.

India adopted the pro-FDI approach in 1990’s with a view to improve production and efficiency, increase returns on capital, provide for new investment opportunities and increase profitability through the provision of better machinery, technology, training, managerial skill and finance. The decision to allow FDI was essentially takento integrate the local domestic markets with international ones and provide easy access to international markets for domestic business. This has lead to increases in the local demand for local inputs such as labour and suppliers, created local demand of domestically produced goods and services and resulted in an increase in domestic investment, directly and indirectly.

It was with these principles in sight that in late 2012, the Central government had, after a lot of dilly-dallying, finally mustered the valour to throw open the gates to foreign investment in multi-brand retail, considered political ‘no-go zone’ and pave the way for the much-awaited entry of foreign retail giants such as Walmart, Tesco and Carrefour into the retail market. While initially the policy allowed retail players to only set up single-brand stores or enter the wholesale segment and sell bulk buyers such as canteens, restaurants and kirana shops, riders such as sourcing norms and rules to open stores in cities with a population of over one million in states which have agreed to back the measure have been tweaked for the benefit of foreign players, who could now pick up51% (fifty-one percent) stake in Indian joint ventures.

The state of Delhi was one of the first few states to open its doors to FDI in multibrand retail along with eleven other states and union territories including Maharashtra, Karnataka and Andhra Pradesh with the hope that the decision to allow 51% (fifty-one percent) FDI in the sector will be a game-changer for the retail market essentially dominated by neighbourhood stores. However, it appears that with the entry of new regime, new rules are being imposed with probably little consideration towards the long term economic implications.

The new regime in Delhi has chosen not to allow FDI in multi-brand retail in Delhi. This essentially implies that if there is a new government elected in any of the other eleven Indian states/union territories which have currently permitted FDI in retail, such governments may also easily change the respective states’ stance and withdraw permission on FDI in retail, if it so wants. Therefore, this will not only restrict FDI in multi-brand retail in Delhi but also discourage and hamper investment sentiment of international retailers planning to enter India as a whole.

Those who are opposing FDI in retail on the grounds that lakhs of small traders will lose out seem to be losing sight of the fact that (a) consumers would have benefited from vast choices of products at competitive prices; (b) both large multibrand retail stores and small kirana storescan co-exist peacefully; and (c) in any case, the loss for these small kirana stores/traders will be more than compensated by the gains to hundreds of millions of consumers and farmers who will benefit from cutting out the middlemen.

Also, it is imperative to consider the view propagated by the Reserve Bank of India in the past, that FDI in retail may be particularly helpful in improving supply chain management, with economies of scale, superior expertise and trained staff through greater investment in backend infrastructure, including cold storage for farm and poultry products. On the other hand it is also slated to benefit the consumer as well, who can expect prices to come down in large format stores.

Be that as it may, the decision with respect to FDI in Delhi has already been reversed and in the race of politics of appeasement, may soon be followed by other states as well. The issue would therefore, loom large that despite the central clearance of FDI in multi-brand retail followed by the states’ approval in this regard, the successive state governments may decide to veto or withdraw its permission on FDI at a later stage, leading to uncertainty and volatility continuing to hinder investments in the sector and discourage investors. Therefore, clearly the need for strengthening investor confidence and liberalising the economy on a whole has been completely overshadowed by the demands of present retail market continuing to monopolise the sector.