Foreign supermarket giants face being shut out of the Indian capital with Delhi’s new state government saying it won’t grant them a licence.

Amit Yadav, the Delhi municipality’s industry commissioner, told AFP on Tuesday he had written to the federal government to indicate foreign “multi-brand retailers” would not be given consent to open stores in the capital in a reversal of previous policy.

Foreign retailers which only sell their own branded products, such as Britain’s Marks and Spencer, have long been able to operate in India.

But reforms unveiled by Prime Minister Manmohan Singh in late 2012 should pave the way for the first foreign supermarkets to operate, provided 30 per cent of their produce is sourced locally.

Delhi had been expected to be one of the first places to welcome the likes of Walmart and Tesco under the reforms.

But Singh’s Congress party was trounced in state elections in Delhi last month, losing power to a new anti-corruption party with a much cooler attitude towards foreign direct investment (FDI).

“It was a part of their manifesto to drop the FDI in multibrand retail policy and accordingly, a letter has been sent to the government of India asking to withdraw it,” said Yadav.

“FDI in multibrand retail is a policy that lies with the consent of individual state establishments. Its implementation is strictly a state subject.”

Aam Aadmi, a fledgling anti-corruption party, made opposition to the FDI reforms one of its pledges in the Delhi election which had been ruled by Congress for the last 15 years.

Singh’s FDI reforms, which allow Western supermarkets to hold a majority stake in local chains for the first time, have been seen as a chance to revive India’s ailing economy.

But small family-run stores fear that they could be priced out of business by the major retailers while there has also been widespread opposition from labour activists.

India’s main business lobby criticised the Aam Aadmi government move, saying it would hit investor confidence at a time when the economy is growing at its slowest rate for a decade.

AFP