Wrong signal

The Aam Aadmi Party (AAP) government’s decision to withdraw the permission given by the previous government in Delhi for foreign direct investment in multi-brand retail is wrong and unwise. It shows not only an inadequate and faulty appreciation of the case for FDI in an important area but also ignorance of a basic norm of administration.

The AAP’s election manifesto had promised controls on FDI in retail. A blanket withdrawal of permission might be taken to be the fulfilment of a promise but its implications will only be negative. Chief minister Arvind Kejriwal has defended his decision with the argument that FDI in retail will reduce employment opportunities in Delhi. He has accepted that retail outlets with foreign investment would give greater choice to the consumers but feels that the feared loss of jobs is an overriding concern.

The argument of loss of jobs is not correct. Organised retail might actually expand employment, and the neighbourhood shops will not offer many more job opportunities in future. This has happened everywhere where big retailers have started operating. In Delhi Indian big retail will continue to operate without competition from the more organised and efficient foreign retailers. Large retailers and competition among them will actually help to bring down prices, thus benefitting the consumer.

At the same time producers will also gain from higher remunerative prices. The reduction in the number of middlemen between producers and consumers  will help both. Organised retail will also create an infrastructure for procurement and preservation of goods for trade and introduce a more efficient supply management chain. All this has been discussed and debated in the country for long and it is unfortunate that the AAP government has taken a decision without wider consultations on its merits and demerits.

The decision can be faulted on another ground also. The AAP government’s decision on FDI in retail will send out a wrong signal to investors. Consistency and continuity of policy  are necessary to create confidence among investors. The country has suffered in the past because of policy reversals and resulting uncertainty when it is in need of creating a better investment climate. The AAP government’s decision might prompt other governments to review their own decisions about FDI in retail. Rajasthan has already given such an indication. They will be denying the benefits of a major policy reform to the majority of the country’s people.

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