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WRONG LESSON

The ship of Indian economic reforms has never been able to escape from the choppy waters of populism and antiquated ideas. The latest victim is foreign direct investment in retail. The new government in Delhi led by Arvind Kejriwal and the Aam Aadmi Party has withdrawn the permission given by the previous government to allow FDI in retail. To be fair to Mr Kejriwal, his election manifesto did promise the imposition of controls on FDI in retail. Mr Kejriwal’s reason for withdrawing the permission is that FDI in retail, in his view, will adversely affect employment prospects in Delhi. He admitted that FDI in retail would bring greater choice to consumers but in his mind the impact on employment opportunities was much more important. His fears about loss in employment may actually be misplaced in the Indian context. Here young men and women from an upwardly mobile lower middle class often prefer to work for and in big outlets. What he has also overlooked is that an organized retail trade will bring greater investment in the supply chain and this will inevitably bring gains to producers and consumers. It is obvious that Mr Kejriwal’s decision is not based on any thought but on a knee-jerk antipathy to foreign big business. He has allowed his rhetoric to override his common sense.

Mr Kejriwal has also not considered another impact of his decision. He has explicitly withdrawn a policy decision announced by his predecessor. As the head of an elected government, he has a right to do this but he should have considered its implications. This kind of move is invariably interpreted as a kind of policy uncertainty that always alarms potential investors. India is already investment starved and can ill-afford to send out the wrong message to the world. Mr Kejriwal, unwittingly, may have started a race to put the brake on economic reforms. The new government in Rajasthan is also threatening to follow the Delhi’s government’s lead on FDI in retail. There are attempts being made in Maharashtra to roll back reforms on power tariff. This is also an attempt to imitate the AAP. It would appear that the established political parties are drawing the wrong lessons from the emergence of the latest political avatar in India. The success of AAP represents the demand for transparency and rectitude in public affairs. Let the political parties imitate that.