Delhi’s decision to block foreign supermarkets in the capital–one of the few markets that matter in India–is bad for the city and for the country, some analysts said Tuesday.
As India looks to attract more foreign investment, New Delhi’s flip flop on acceptingforeign investment in multi-brand retail in the capital sends the wrong signal, the analysts said.
“Delhi is one of the key metro markets, keeping it out of reach of retailers may significantly reduce the attractiveness of an India investment for any major retailer,” said Deep Mukherjee, a director at ratings agency Fitch. “This uncertainty with respect to change of guard at the state level will always be a problem for any long-term investor in the retail space.”
The new Aam Aadmi Party-led government in New Delhi this week asked the Department of Industrial Policy and Promotion to remove Delhi’s name from the list of cities which allow multi-brand retail stores. Multi-brand retail is Indian bureaucratic speak for retail stores that carry more than one brand, such as supermarkets.
Big global brands used to only be able enter India through franchises, wholesale stores or single-brand stores, such as clothing shops. That kept out big supermarkets such as those run by Wal-Mart Stores Inc.
Last year India opened the retail sector to allow foreign retailers to own up to 51% in local supermarkets. It asked the state governments to make the final decisions on allowing multi-brand stores.
Since then, eleven of the country’s 22 states–including Delhi–decided to allow multi-brand retail outlets.
Last month, however, the Aam Aadmi, or common man, Party, took control of Delhi in state elections after promising it would block foreign investment in retail, concerned it would hurt the mom and pop stores that dominate the sector.
Keeping foreign funds and expertise out of the sector will hurt consumers and delay the modernization of India’s outdated supply chains, said some industry groups.
“This direct negation without demonstrating a search for a viable alternative (will) hamper investment sentiment for the state,” said Sidharth Birla, president of the Federation of Chambers of Commerce and Industry. “Multi-brand retail would help in reduction in wastage of food products thereby controlling inflation.”
Delhi’s new Chief Minister Arvind Kejriwal has said that his government is worried foreign firms could end up dominating the retail industry which would lead to unemployment.
The AAP is not the only party opposed to foreign investment in retail. The leading opposition Bharatiya Janata Party has long been against foreign investment in the industry and has tried to block it in the states it controls.
“We are not in favor of retail FDI,” said Vijay Goel BJP’s president in Delhi. “If they [the AAP] have scrapped it, we see no problem.”
States and parties will have to take clear stands on the issue as the country heads to national elections scheduled to happen before the end of May.
Until then, international retailers will have to invest conservatively to be sure they don’t set up shop only to be tossed out by a new batch of leaders.
“The retailers will assess the market opportunities before making investments in the respective states,” said Ankur Bisen, senior vice president at retail industry consultants Technopak Advisors.
India’s Commerce Minister Anand Sharma Tuesday slammed the Aam Aadmi Party’s decision, saying the country’s current policy already has sufficient safeguards for small traders and shopkeepers.
“There can’t be abrupt U-turns,” in policy like this, he said. “We are not a banana republic.”
–Vibhuti Agarwal contributed to this post.