<b>Kanika Datta:</b> Trading places

It took about 10 years for India's political class to decide that Economic Reform, of which Foreign Direct Investment (FDI) is a subset with some vaguely understood connection to something called the World Trade Organisation, isn't such a bad thing. Yet, ironically after nearly 10 years of a regime ostensibly headed by a man credited with putting India on the road to reform, Indian politics is back where it started.

The AAP-inspired scramble for free or subsidised water and power among states is the latest symbol of this swift reversal. It has implications that go far beyond the standard free rice/bicycle/laptop routine that politicians adopt to appease less well-off voters. The AAP's brand of competitive populism is set to comprehensively replace the competition among states - from Bihar and Uttar Pradesh to Bengal and Andhra Pradesh - to attract job-enhancing investment, whether Indian or foreign. Even the charms of Gujarat's feted Development Model, the Bharatiya Janata Party's declared election platform, are fading a bit as the party's leadership struggles to come to terms with this great leap back.
 

But the march to competitive ultra-leftism is actually a legacy of the United Progressive Alliance (UPA) via National Advisory Council-inspired initiatives and its one-time partner Mamata Banerjee's Trinamool Congress with its anti-industry populism. Nowhere is this better demonstrated than in the flip-flops over the policy governing FDI in retail.

Already, the AAP's decision to disallow foreign multi-brand retailers in Delhi is expected to create a wave of competitive cancellations in several of the 12 other states - across the ideological spectrum - that allowed foreign retailers to enter after 51 per cent FDI was permitted in September 2012.

Is this really the result of an "aam aadmi" demand? It would be more accurate to call it pressure from vested rentiers embedded in India's highly defective retail chain who are both vocal and have the means to bankroll candidates in the upcoming elections.

Note that these tireless anti-retail FDI lobbies seem to have no objection to Indian giants in this field. The logic that any large mall, whether Indian or foreign, can potentially impact kirana shops equally seems to have escaped them.

So, with the old confusions over FDI reasserting themselves in force, you can visualise a raft of antediluvian politicians leaping with glee on Joseph Stiglitz's comment that "It is not necessarily a case that foreign firms entering India in the retail sector will make a country better off".

Now, Mr Stiglitz, with his well-established positions on the discontents of globalisation, is a credible voice. He is probably right on this issue too. So far, big retail hasn't transformed India the way, say, the IT revolution did or, indeed, the boom in the automobile industry (though Nanz, one of the earliest, and ultimately unsuccessful, foreign entrants in Indian retail in partnership with Escorts, did provide tantalising pointers to the potential of this business). It can only do so when state statute books dissolve the monopolies on wholesale suppliers and allow retailers to buy directly from farmers.

But Mr Stiglitz may be unaware that for India, the issue of FDI in retail is really one of optics. It sends a signal to the global business community that currently goes beyond its impact on the economy.

To illustrate, consider the re-entry of Coca-Cola in 1992. That did not really cause a big bang transformation. But it signalled to a watching world that India was open for business. So, a regime that indicates that it has no objection to, say, Walmart, Tesco, Carrefour and other global labels establishing themselves here speaks volumes for its approach. But the conditions that hedge these entries and the weird distinctions between cash and carry, single-brand and multi-brand also say a lot about a fundamental ideological confusion towards FDI (and who knows why FDI is banned in e-commerce).

Ironically, it was in Bengal's capital, then still a Left bastion, that the tensions first emerged. Calcutta, as it was then called, was the second city in which a foreign cash-and-carry label opened shop. This was German wholesaler Metro Cash & Carry (cash and carry was the first of the "segments" that were opened to 100 per cent FDI).

Yet, when a trading licence came up for renewal, it was a minister from the Forward Bloc, a junior Left front partner, who raised objections and cancelled it in 2007. An embarrassed and beleaguered chief minister Buddhadeb Bhattacharjee reversed the cancellation, but it was too late. His pro-industry, pro-FDI reputation, the cumulative impact of other decisions, automatically made him anti-people, an image that cost him his state.

So it will take a truly brave state politician to buck moneyed vested interests and allow any foreign retailers unfettered entry. And if the AAP, the newest, swankiest kid on the block, has shown that it lacks that courage, no one should bet on old-generation politicians to think differently.