To Want, And Then Want More

Walmart Way In India

• Eager to get investments, UPA bends, relaxes rules to allow Walmart into front-end retail.
• Walmart faces FCPA probe for alleged bribery in India and other countries; stops expansion in India and sacks India CEO Raj Jain.
• Walmart ends JV with Bharti. Strangely, Bharti appoints Raj Jain as advisor; even suspended CFO Pankaj Madan joins Bharti.
• Govt then gives Walmart a clean chit for its $100 million investment in Cedar, owned by Bharti
• Walmart plays hardball with UPA, says won’t enter multi-brand retail till rules are eased.
• Walmart discloses that lobbying for India has been resumed in the US. Its next target is FDI in e-retail, where Reliance, Future Group have big plans. UPA is resisting—for now.

***

The joke doing the rounds in India’s corporate circles is that if there’s a need to get policy changed or relaxed, then Walmart is the company to outsource it to. It is not without reason that the world’s largest retailer has earned this rather dubious reputation. In a country that remains deeply divided over the impact of foreign direct investment (FDI) in retail, Walmart has achieved the impossible, tho­ugh many have questioned its methods.

In less than a decade after it entered India through a joint venture for cash-and-carry operations with Bharti Retail in 2006-07, Walmart is perceived as a financially strong behemoth that uses political and international muscle-power to play hardball with the UPA to force changes in policy. The government, in need of foreign investment and facing US pressure, has yielded to these persuasions in the name of the Indian consumer. But the opposition from political parties (like the BJP), state governments, and India’s shopkeeper lobbies lingers on.

Last week, Walmart disclosed before the US Senate that it had resumed lobbying with US lawmakers on matters related to FDI in India. Now that the UPA has opened up front-end retail to foreign firms, Walmart is looking at the next level. But crucially, it has still not ann­ounced plans to make that big move into frontal retail it had been lobbying for.

Continuing its pressure tactics, Walm­art has made it clear many rules in the new policy were unacceptable, particularly the provision of a 30 per cent compulsory sourcing from local firms. Now that it has a retail toehold, it is clamouring for an extra inch—an entry on its own terms. “The new FDI policy is being cha­nged due to the corrupt practices of Walmart. It is a totally unethical app­roach, especially when lobbying is illegal in India. The conditions imposed are justified, even the 30 per cent sourcing norms. China is also doing this,” says rural economist Krishan Bir Chaudhary.

When contacted, a Walmart spokeswoman told Outlook: “We continue to study the feasibility of the new FDI policy...Walmart is committed to India and we continue to review the guidelines and work with the government and interested stakeholders to create conditions that enable FDI in multi-brand retail.”

Many retail experts, however, blame  India’s faulty policy environment. Arvind Singhal, chairman of retail consultancy Technopak, says, “The conditions in the policy has made it a non-starter, especi­ally the compulsory sourcing from small, medium and micro enterprises, as the government cannot dictate what consu­mers will buy. The Walmart-Bha­rti JV was a victim of this policy confusion.”

Anand Sharma and WM CEO Scott Price

Not only this, retailers have to take permission from each state, which have a right to refuse. There is also the condition of foreign retailers having to invest $100 million in the first tranche, which experts feel is impractical because Indian partners with a 49 per cent share would also have to invest a similar amount. After Walmart, no other global retailer has invested in India’s front-end retail, increasing the pressure on the Centre.

The government, which has relaxed several provisions in the new FDI policy—which is barely a year old—may well con­sider further relaxations. It has alre­ady changed rules regarding the criterion for a ‘city’—initially it was a place with 10 million people as per the 2011 census. Now it is the states’ discretion. The condition of investing 50 per cent of the total investment in back-end operations has also been relaxed to first-time investments. Even the mandatory 30 per cent sourcing from small industry is limited to manufactured items only, and will be applicable only the first time a retailer works with a small company.

Earlier this month, Walmart anno­unced an end to its JV with the Bharti group because of “external and internal factors, including the new FDI policy”. Many observers, however, see this as a way to ease out an Indian partner now that FDI in retail has been cleared, with a weaker partner more suitable. This is evident from the fact that in the last one year, Walmart had stopped expansion of the JV; in the last 12-15 months, no new front- or back-end stores were opened.

A spoiler in Walmart’s game has been the probe it faces in the US under the Foreign Corrupt Practices Act (FCPA) for bribery charges in Mexico, India and other countries. This led to some cha­nges—in June, Walmart sacked its India CEO Raj Jain, its CFO and other officials.

However, Walmart has managed to get a clean chit from the Centre. In June, a government-appointed committee cle­a­red the company on charges of lobbying in India, as the probe was inconclusive. Four months later, India’s Enforcement Directorate exonerated Walmart on FEMA violations for its $100 million inv­estment in Cedar Support Services, a firm owned by Bharti, at a time when foreign investment was not allowed in India. Interestingly, Bharti Retail has appointed Jain as advisor for its retail venture, giving rise to talk that even after the split, Walmart’s legacy will be kept alive in Bharti’s Easyday stores.

So, what’s next for Walmart? With physical retail in the kitty, the next lucrative area is e-retail, where it has a huge global presence. With India’s e-commerce traffic increasing by 65 per cent from last year, this is a natural target. But the government doesn’t appear to be in any hurry. A PMO spokesperson says, “E-commerce is a low-hanging fruit, but it is not even on our agenda. There is considerable pressure from other countries to open up FDI in e-commerce, but we do not plan to look at it now.”

For the record, a draft note that exa­mines the prospects of the sector is being circulated. Several contentious issues rem­­ain unanswered, like the nodal ministry, rules to govern the sector and tax ation pol­icies. All this could take time to settle down. But will Walmart wait? With elec­tions within sniffing distance—and BJP positioning itself strongly against FDI in multi-brand retail—the current game is to extract the maximum bargains from an eager-to-please UPA.