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Within days of American retail major Walmart splitting with Indian partner, Bharti Retail, and saying its multi-brand foray was untenable under the current policy regime, the government is learnt to have concluded there’s no evidence of violation of foreign direct investment (FDI) norms by the US chain. This followed an Enforcement Directorate (ED) probe that had been coming in the way of its doing business in the country.
Industry watchers and analysts interpret the ED verdict as a strong signal to multinational companies that India should be seen as an investor destination. Besides criticism against tough policy riders in the retail sector that might be keeping investors at bay, industry backlash over naming of industrialist Kumar Mangalam Birla in an FIR filed by the Central Bureau of Investigation (CBI) could have prompted the government to come out with a good-news package for business, they indicated.
Immediately after Walmart had announced its break-up with Bharti in the cash-and-carry segment — indicating it was in no hurry to enter multi-brand retail which capped foreign investment at 51 per cent — Finance Minister P Chidambaram had remarked the US chain was a “speck in the Indian retail market” and that its absence would not matter much.
But, almost coinciding with Chidambaram’s return from the US was the action of ED, part of the finance ministry, that was a little short of giving a clean chit to the $440-billion Walmart but certainly made things look better for the firm.
Speaking of the case that involved Walmart’s $100-million investment as compulsory convertible debenture (CCD) in Cedar Support Services, parent company of Bharti Retail, a finance ministry official indicated to Business Standard that there was no evidence of violation of FDI norms.
Enforcement Director Rajan Katoch declined to comment. “I can’t say anything right now,” he said in response to a query from Business Standard. Another ED official, who did not wish to be named, said: “We have sent an investigation report to RBI. Now, it is for them to take a call.” Asked whether there was no violation by Walmart and ED had given it a clean chit, he said: “It is partly true.”
The deal was that the Walmart investment made in March 2010 was to be converted into 49 per cent equity by September 30, 2013, a deadline arrived at after several extensions. ED was investigating violation of Foreign Exchange Management Act, following complaints made to the Prime Minister’s Office.
A controversy had arisen because FDI was not permitted in the multi-brand retail sector in 2010. Recently, Walmart had sought another one-year extension for converting the CCDs into equity.
Asked whether the American chain might make a proposal for entry into multi-brand retail in the India market now, or if it would reconsider its split with Bharti following the latest development, a spokesperson for Walmart said: “ED has not yet released its findings. So, we have not seen the result of its review and cannot comment.” Bharti did not comment, either.
The investment in the retail arm of Bharti by Walmart might be in line with the guidelines, but the central bank might still fine the two companies for not converting the $100-million debentures into equity within time, an official pointed out.
ED was asked to investigate into the type of investment made by Walmart — what was the end use and whether it was in line with the policy. However, due to lack of clarity in FDI policy at that time, ED has said there might not be a violation of FDI guidelines. The government had recently amended Fema and FDI norms for the multi-brand retail sector.
The ED verdict would enable Walmart to come into multi-brand retail with a clean slate, experts said. An official at the Department of Industrial Policy and Promotion (DIPP) said the investigation was surely at the back of the company’s mind, preventing it from taking business decisions.
Besides the ED probe, an internal anti-corruption investigation at Walmart has also been a hurdle for the company. Five executives of Bharti-Walmart had been suspended last year due to the ongoing investigation under the US Foreign Corrupt Practices Act (FCPA) that had stopped all expansion. And then there also was Walmart’s disclosure to the US Senate on its lobbying activities to gain greater access to key markets, including India. That made things worse, politically, with the Opposition asking for a probe. An inquiry by a one-man committee headed by former Justice Mukul Mudgal was, however, closed a few months ago due to inadequate information.
Industry watchers and analysts interpret the ED verdict as a strong signal to multinational companies that India should be seen as an investor destination. Besides criticism against tough policy riders in the retail sector that might be keeping investors at bay, industry backlash over naming of industrialist Kumar Mangalam Birla in an FIR filed by the Central Bureau of Investigation (CBI) could have prompted the government to come out with a good-news package for business, they indicated.
Immediately after Walmart had announced its break-up with Bharti in the cash-and-carry segment — indicating it was in no hurry to enter multi-brand retail which capped foreign investment at 51 per cent — Finance Minister P Chidambaram had remarked the US chain was a “speck in the Indian retail market” and that its absence would not matter much.
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COURTING CONTROVERSY The case at a glance: |
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But, almost coinciding with Chidambaram’s return from the US was the action of ED, part of the finance ministry, that was a little short of giving a clean chit to the $440-billion Walmart but certainly made things look better for the firm.
Speaking of the case that involved Walmart’s $100-million investment as compulsory convertible debenture (CCD) in Cedar Support Services, parent company of Bharti Retail, a finance ministry official indicated to Business Standard that there was no evidence of violation of FDI norms.
Enforcement Director Rajan Katoch declined to comment. “I can’t say anything right now,” he said in response to a query from Business Standard. Another ED official, who did not wish to be named, said: “We have sent an investigation report to RBI. Now, it is for them to take a call.” Asked whether there was no violation by Walmart and ED had given it a clean chit, he said: “It is partly true.”
The deal was that the Walmart investment made in March 2010 was to be converted into 49 per cent equity by September 30, 2013, a deadline arrived at after several extensions. ED was investigating violation of Foreign Exchange Management Act, following complaints made to the Prime Minister’s Office.
A controversy had arisen because FDI was not permitted in the multi-brand retail sector in 2010. Recently, Walmart had sought another one-year extension for converting the CCDs into equity.
Asked whether the American chain might make a proposal for entry into multi-brand retail in the India market now, or if it would reconsider its split with Bharti following the latest development, a spokesperson for Walmart said: “ED has not yet released its findings. So, we have not seen the result of its review and cannot comment.” Bharti did not comment, either.
The investment in the retail arm of Bharti by Walmart might be in line with the guidelines, but the central bank might still fine the two companies for not converting the $100-million debentures into equity within time, an official pointed out.
ED was asked to investigate into the type of investment made by Walmart — what was the end use and whether it was in line with the policy. However, due to lack of clarity in FDI policy at that time, ED has said there might not be a violation of FDI guidelines. The government had recently amended Fema and FDI norms for the multi-brand retail sector.
The ED verdict would enable Walmart to come into multi-brand retail with a clean slate, experts said. An official at the Department of Industrial Policy and Promotion (DIPP) said the investigation was surely at the back of the company’s mind, preventing it from taking business decisions.
Besides the ED probe, an internal anti-corruption investigation at Walmart has also been a hurdle for the company. Five executives of Bharti-Walmart had been suspended last year due to the ongoing investigation under the US Foreign Corrupt Practices Act (FCPA) that had stopped all expansion. And then there also was Walmart’s disclosure to the US Senate on its lobbying activities to gain greater access to key markets, including India. That made things worse, politically, with the Opposition asking for a probe. An inquiry by a one-man committee headed by former Justice Mukul Mudgal was, however, closed a few months ago due to inadequate information.
