AAP should not ban supermarket FDI

The Aam Aadmi Party (AAP) claims that it consults many stakeholders before it takes important decisions, like forming its first government in Delhi. Who did it consult before deciding that Delhi would not allow foreign direct investment (FDI) in supermarkets? The government of India took the decision to open up supermarkets to overseas investments after protracted debate in media, academia, civil society and Parliament, because in balance, the benefits of FDI in supermarkets outweighed the costs. Supermarkets create jobs. There are many other benefits as well.

For example, if food retailers were allowed to buy direct from farmers, instead of going through a complex chain of politically-connected middlemen in states, it would reduce waste, speed up time from farm to plate, boost prices of farm produce for farmers and cut food inflation by eliminating middlemen’s margins. Supermarkets offer discounts that help consumers. By banning FDI, the AAP looks like an Aam Shopkeeper Party.

The ban on FDI carries another risk: policyinstability. If every election were to bring in a government to overturn policies of its predecessor, investors would not know what to do. Investments are made over long horizons, not the few years that any party is in power in a state. So, rapid policy turnover would freeze all investors in their tracks. Boosted by success in Delhi, the AAP is fanning out across India. As it does that, it has to make the transition from a popular movement agitating for a cause to a political party with well-thought-through policies. Recently, its positions on holding grand durbars, not accepting state housing or security have crumbled, chipping away at its credibility. It should withdraw the ban on FDI in supermarkets before losing more face.