Paranjoy Guha Thakurta
Is the world’s largest multinational retail corporation seeking to arm-twist the government of the world’s largest democracy? There is evidence to indicate that the US-based Walmart Stores Inc., the world’s second-largest public corporation (according to Fortune magazine) and biggest employer in the private sector (with over two million employees) would like the Indian government to further dilute its rules allowing foreign investors to hold a majority stake in multi-brand retail outlets.
Barely a year ago, the United Progressive Alliance-II government had virtually staked its very existence on the issue of allowing companies like Walmart to enter the country in the teeth of resistance, not just from the Opposition on both the Right (that is, the Bharatiya Janata Party) and the Left (the Communists), but its own former coalition partners (notably the Trinamul Congress and the Dravida Munnetra Kazhagam). Thereafter, the government softened the terms and conditions permitting foreign retail companies to operate in the country. But Walmart has so far made no commitment to invest in India.
In fact, it parted ways with its erstwhile partner here, the Bharti group led by Sunil Bharti Mittal, who also heads the country’s biggest telecommunications conglomerate. On October 9, it was formally announced that Bharti Enterprises and Walmart had decided to go in separate directions by concluding their relationship that had begun in 2007 and saw the establishment in 2009 of a wholesale (not retail) store in Amritsar, Punjab, under the Easyday brand.
On October 31, the Press Trust of India put out a report to the effect that commerce and industry minister Anand Sharma had cancelled a meeting with Scott Price, chief of Walmart’s Asia operations, in a move that was widely perceived as a snub to the American multinational. Quoting unnamed sources, the report claimed that Walmart officials were raising new issues and “not conveying what exactly they want”.
The meeting between Sharma and Price had reportedly been fixed more than 10 days earlier and was abruptly called off after a private aircraft had been readied for the Walmart executive to fly to Delhi. Reason: Sharma had apparently organised a pre-Diwali get-together on Friday (November 1) evening for some of his Cabinet colleagues and a select group of journalists.
A day after the PTI report, the government went into damage control mode. Bureaucrats suggested that the “postponement” of the meeting between Sharma and Price should not be interpreted as an attempt to cold-shoulder the US retail conglomerate (based in Bentonville, Arkansas, and controlled by the Walton family). Saurabh Chandra, secretary, department of industrial policy and promotion, which is responsible for retail sector policies, was quoted saying the “policy regime (is one) where everybody, be it Walmart or Tesco, is welcome.”
Earlier, on October 14, finance minister P. Chidambaram had told a television channel: “WalMart will be a speck in India’s retail market. India’s retail market is driven by millions of stand-alone stores. It has been strengthened by Indian retail chains. So why do we assume that WalMart will make a huge difference to India’s retail market?”
When, on December 1, 2012, the Union Cabinet decided to allow the entry of foreign direct investment in multi-brand retail stories, it was evident that the government should not depend on the support of the Trinamul Congress for this controversial move as the then railways minister Dinesh Trivedi had stayed away from the Cabinet meeting. Prime Minister Manmohan Singh, however, insisted on the proposal, claiming that the likes of WalMart and Tesco would lower food prices, result in more remunerative prices to farmers by removing middlemen, reduce rotting of vegetables and fruits and, above all, create more jobs — all rather laudable goals which no politician in his right senses should have opposed.
But the Cabinet decision had to be placed in cold storage in the midst of the capital’s winter, not on account of the Opposition, but because of strident opposition from coalition partner Mamata Banerjee. The then finance minister, Pranab Mukherjee, even sheepishly acknowledged in public that the choice before the government was FDI in retail or early general elections.
On April 3, the new FDI in retail policy was unveiled. Foreign firms were allowed to own majority shares in Indian retail stores provided they sourced nearly a third of their goods from small and medium-sized Indian suppliers; confined their operations to 53 cities with a population of over one million, put in a minimum investment of $100 million with at least half the amount in back-end infrastructure, including cold chains, refrigeration, transportation, packing, sorting and processing to reduce post-harvest losses. Importantly, individual state governments were given the right to decide whether or not they wanted foreign retailers.
Soon after the policy was announced, Walmart made it clear that the provision of 30 per cent compulsory outsourcing to local small companies was not acceptable to it. There was also the “impractical” condition of Indian partners of foreign retailers having to invest up to 49 per cent of $100 million in the first tranche. The government obliged by tweaking some of the rules.
State governments were given the discretion to allow foreign retail companies in their provinces even in a “city” with a population of less than a million. The condition of investing 50 per cent of total investments in back-end operations was eased to “first-time investments”, while the norm of mandatory 30 per cent sourcing from small local firms was limited to “manufactured items” and made applicable only as a “one-time measure”.
Walmart recently disclosed to the US Senate that it had resumed lobbying with American lawmakers on issues related to FDI in India. In June, an investigation had been started in the US under the Foreign Corrupt Practices Act to examine allegations of bribery against Walmart in Mexico, India and other countries. Walmart sacked/suspended two of its top executives in India, chief executive Raj Jain, and chief financial officer Pankaj Madan, both of whom were absorbed in the Bharti group.
The same month an official committee in India gave a clean chit to Walmart saying it had no evidence of allegations that the US retailer had lobbied illegally. The Enforcement Directorate also stated that foreign exchange rules had not been violated when the US company invested $100 million in Cedar Support Services, an investment company in the Bharti group.
Having risked the survival of the UPA-II government last year, the Prime Minister is surely not overjoyed about the fact that no foreign retailer has so far announced that it will invest in India. Are you surprised then why Scott Price was not on the guest-list at Anand Sharma’s Diwali bash?
The writer is an educator and commentator
Courtesy : DC