India launches inquiry into Walmart’s alleged FDI rules violations

Thursday, 18 October 2012 - 11:05pm India News Bulletin Desk

The financial regulators in India have opened an inquiry into allegations that American retailer Walmart allegedly violated the rules guiding the foreign direct investment (FDI) in retail in the country prior to the new reforms.

regulators to probe into Walmart FDI in Indian retail

Image: Wikimedia Commons

The investigation comes after a CPI member wrote to the PM opposing the government’s new FDI reforms.

The inquiry will look into the existing collaboration between Walmart and India’s Bharti Retail which operates over 200 retail stores in India. According to allegations, the American retailer has “illegally” invested $100m (in the form of debentures) in Bharti retail prior to the new FDI reforms announced in September 2012.

Just last month, the Indian government allowed 51% foreign investment in multi-brand retail as well as increased FDI limits in aviation and telecom segments. But according to the allegations, Walmart flouted old Indian FDI limits and invested more that it would be allowed.

The new reforms, which came into effect on September 20, have already seen widespread opposition from political parties including the UPA government’s closest allies such as the Trinamool Congress. According to the opposition, the increased FDI in retail will kill small, local businesses.

However, the entrepreneurs and the business sector welcomed the FDI reforms saying it will open up the Indian market for more business.

A week after the Indian government’s controversial FDI reforms came into effect, retailer Walmart was one of the first to express interest in setting up shops in India. The American retailer also has a 50-50 joint venture with Bharti that operates nearly 20 wholesale retail stores alongside supermarkets.

A letter from a member of the Communist Party of India (Marxist) to Prime Minister Manmohan Singh said that the new rules announced by the government for FDI in multi-brand will serve the interests of multinationals like Wal-Mart, TESCO and Carrefour.

The decision to allow FDI in multi-brand retail, the disinvestment in profitable public sector enterprises and the efforts to increase FDI in the insurance sector and privatise pension funds are all meant to profit foreign capital and big corporates, according to a CPI (M) statement.

In addition to the Indian inquiry into its allegedly dubious investment, retailer Wal-Mart is also facing investigation over bribery allegations at its Mexican division.