AAP’s decision to bar foreign supermarkets in Delhi – some thoughts

The Indian Prime Minister, Manmohan Singh, had hoped to usher in greater foreign investment and thus get the flagging economy back on its feet. It had been decided in the later part of 2012 that the Indian retail industry, worth 500 billion dollars, will be opened up so that globally known organizations such as Tesco PLC and Wal-Mart Stores Inc could come in and have controlling shares in retail chains across the country. However, the policy had met the staunch opposition of other political parties as well as Indian retailers when it was being passed. Their main argument was that this step would lead to massive loss of jobs as the sector was primarily made up of smaller shops that were owned and operated by various families.


Now, this policy has met a major roadblock in form of the incumbent Delhi state government. The AAP has decided that it will not allow the entry of any foreign mall to set up outlets in the city. When the decision was first brought to public notice several sourcing regulations were announced, which were deemed to be too tough. In addition, the supermarkets chains were also supposed to ask for permission of the respective state governments before they could initiate business in their territories.


During December 2013, Tesco became the first international company to express an interest in India’s retail market when it stated that it would be purchasing 50% ownership in Trent Hypermarket, which is owned by the Tata Group. It is expected however that with AAP’s decision investors would be less interested in looking at India as a viable option. According to the director general of ASSOCHAM, such decisions only increase the political and policy related risks for the global companies. In fact, the Aam Admi Party is not the only political outfit to have overturned Congress’ decision.


The BJP, too, has stated that it shall not allow the influx of foreign supermarkets in India if it is able to win the elections in May. Thanks to the political issues now only 11 states across the country have agreed to allow foreign supermarkets to function in the country. Incidentally, majority of these states are controlled by the Congress. The national administration had previously permitted 51% FDI in single brand retail outfits and cent per cent ownership in case of wholesale retailers. Several international groups such as Wal-Mart had, in fact, lobbied for the same.


Over the years, Indian retailers and operators of supermarket chains have faced problems in running their business without hitches owing to factors like paucity of financial resources in addition to necessary experience and skill. The infrastructure in India, especially the cold storage, has been bad as well and this has meant that it has been well nigh impossible to ferry around food products from one place to another. Now in this context one wonders if the international supermarkets, with their greater experience and better tools could have played a bigger role or not.


The policy to not let the international supermarkets enter markets where the local retailers are already well-entrenched may be a well thought out one on several grounds but is it also applicable in states where sufficient opportunities have not been created by the local entities? Perhaps the international organizations could play a significant role over there. Secondly, instead of outright rejection of the foreign supermarkets, it might be logical to integrate them in such a way that the established sector is enriched and not endangered. Much thought needs to be put in over here and populism may not be the right answer to this particular question.