AAP's rolling back of reform is dangerous

Last Updated: Wed, Jan 15, 2014 01:14 hrs

The new Aam Aadmi Party (AAP) government in Delhi has written to the Department of Industrial Policy and Promotion saying that it was withdrawing the permission granted by the previous Congress government to allow foreign direct investment (FDI) in multi-brand retail in the state.

Delhi Chief Minister Arvind Kejriwal said that the reason was that the new government wished to control unemployment, and that allowing FDI in retail would work against that aim. Indeed, controls on FDI in retail were in the AAP's manifesto, so this should not come entirely as a surprise.

However, it is a backward-looking and irresponsible decision. In his defence, Mr Kejriwal did indeed say that consumers would benefit from greater choice with FDI in retail, though those benefits were outweighed in his opinion by the harm caused to employment.

It is important to note, however, that Mr Kejriwal's fears of unemployment are based on studies of economies vastly different from that of India - where, indeed, service sector work such as that provided by big-box outlet stores is greatly prized by a growing, aspirational lower middle class. In any case, Mr Kejriwal also ignored the fact that an important by-product of organised retail would be investment in the supply chain, an area where India is woefully deficient.

This will benefit both consumers and producers. The Delhi chief minister has, thus, taken an excessively limited view. And, in any case, he must remember that his state is part of a National Capital Region. What harms Delhi will benefit Noida and Gurgaon. The first lesson, when in government, should be to comprehend the limits of its power.

Reversing the policy decisions taken by earlier administrations is the right of any elected government. However, it is something that must be done with care, and in moderation. It sends out a signal of policy uncertainty that is very dangerous, especially at a time when India is struggling with investment, as it is today.

What is worse, however, is that other political parties have drawn quite the wrong conclusions from the success of the AAP in Delhi. They are competing with the AAP not on transparency but on the rollback of reform. In Rajasthan, the new Bharatiya Janata Party (BJP) government has made noises suggesting it, too, will roll back the state's opening up to FDI in retail - Delhi and Rajasthan were among the first few states to say yes to FDI originally.

In agrarian Rajasthan, there is even less justification for this measure than in Delhi. The BJP in the state had not mentioned retail FDI in its manifesto, unlike the AAP; any reversal would be clearly seen as an attempt to copy the AAP, and further worry investors that even reform-friendly manifestos are not to be taken at face value.

Meanwhile, in Maharashtra, there is the silly sight of a Congress leader, Sanjay Nirupam, pressuring his party's own state government to roll back reforms to the power tariff in response to the AAP's actions in Delhi. This political competition over rolling back reform is dangerous, and must stop.

The AAP's appeal to voters came primarily from its anti-corruption agenda; and the best antidote to corruption is more reform, not less. Responsible political parties should make that case to their voters.

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