Wal-Mart faces inquiry in India

Complaint alleges retailer jumped the gun on new law

Customers shop at a Bharti Wal-Mart store near Chandigarh, India, on Wednesday.
Customers shop at a Bharti Wal-Mart store near Chandigarh, India, on Wednesday.

— An Indian government agency is investigating allegations that Wal-Mart Stores Inc. violated legal restrictions on foreign investment in the retail industry, Trade Minister Anand Sharma said.

The government received complaints alleging that Bentonville-based Wal-Mart invested in the retail industry before a September decision to loosen rules, Sharma told parliament Wednesday.

But Arti Singh, a company spokesman, said in an e-mailed statement that Wal-Mart is “in compliance with India’s laws.”

India’s central bank has referred the matter to the Directorate of Enforcement, an agency that investigates violations of rules relating to foreign investment, the minister said. He didn’t say who filed the complaints.

The investigation adds to Wal-Mart’s troubles in India, where it recently suspended some workers at its joint venture, Bharti Walmart Pvt., as it examines potential violations of U.S. anti-bribery laws.

The government has received complaints that Wal-Mart and its partners, Bharti Enterprises Pvt. and Cedar Support Services Ltd., have been engaged in retail trading that involves multiple brands, Sharma said. India in September opened up its retail market to allow foreign companies to own as much as 51 percent of local ventures that sell more than one brand. Overseas brands such as Wal-Mart had been banned from the supermarket industry un- til then.

“All procedures and processes have been duly followed,” spokesman Singh said in the e-mail.

Meanwhile, the Indian government won a vote in parliament’s powerful lower house Wednesday that gave backing to the plan to open up the country’s retail sector to international companies.

The government won with 253 votes, while 218 lawmakers — who say the move will crush small merchants and farmers — voted against the plan, after 43 lawmakers belonging to two socialist parties abstained from voting.

Before the vote, the Congress had said it was confident of winning the nonbinding vote with the support of its political allies.

A loss would have been a major embarrassment but would not have stopped the measure from being implemented after the Cabinet in September decided to allow foreign companies to own portions of Indian businesses. However, individual states would have the right to decide whether to let the retailers operate in their territory.

Parliament’s upper house will debate the issue later this week.

Telecommunications Minister Kapil Sibal said during the lower house debate that “there would be improvements in the supply chain and an assured buyer for their products.”

But opposition parties said small retailers will not be able to withstand the competition from the global giants.

“Foreign companies are keen to expand their businesses in India as they see this as a big market. But our small businesses and traders will be wiped out,” said Sushma Swaraj, of the main opposition Bharatiya Janata Party.

In 2007, Wal-Mart formed a joint venture in India for wholesale stores and has been building a supply chain and logistics network in the country.

Wal-Mart owns a 50 percent stake in the wholesaleventure with Bharti. Closely held Bharti runs its own chain of more than 186 Easyday stores including supermarkets. Bharti Airtel Ltd., India’s largest mobile-phone carrier, is a part of the Bharti group.

The retailer said Nov. 15 that it started inquiries into potential violations of the Foreign Corrupt Practices Act in India, Brazil and China by its employees or representatives. The U.S. Department of Justice and the Securities and Exchange Commission are looking into allegations that Wal-Mart systematically bribed Mexican officials so it could more quickly open stores.

India’s retail market totals $505 billion annually, according to an estimate by Technopak Advisors Pvt.

Information for this article was contributed by Malavika Sharma of Bloomberg News and by Nirmala George of The Associated Press.

Business, Pages 25 on 12/06/2012

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