Tuesday, June 18, 2024

Wal-Mart invested before clearance


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By Nantoo Banerjee


After Wal-Mart’s admission that it spent money on lobbyists to enter the estimated half-a-trillion-dollar-plus Indian retail market, the questions deeply troubling the minds of the common man in India are: how much of it has percolated into the pockets of Indian politicians; who are the local bribe-handlers who are the receivers and was it used to rig the voting in Parliament against FDI in retail? The Marxist party, CPM, had openly questioned if Wal-Mart had funded the ‘manufacturing of majority’ in Parliament to defeat the opposition motion on the issue. The timing of the sensational Wal-Mart disclosure which coincided with the UPA, albeit Congress, victory in Parliament in favour of its earlier executive order allowing majority 51 per cent foreign control in multi-brand retail trade in India, too is perplexing.

According to the mandatory lobbying disclosure reports filed by Wal-Mart with the US Senate, the company spent close to $25 million (about Rs 125 crore) since 2008 on its various lobbying activities, including on the issues related to “enhanced market access for investment in India”. This amount itself does not appear to be large for the $500-billion Wal-Mart, considering what less-than-one-10th of its size, Enron, the disgraced and long defunct US electricity generating company that managed to acquire the first FDI approval in power production in the post-reform era, officially spent ($20 million) some 30 years ago in “educating” Indians, which is euphemism for “greasing the tracks” to overcome political opposition.

The US-based world’s largest MNC did not specify the amount it spent on lobbying access Indian market. However, the fact of the matter is that well before the government allowed FDI in multi-brand retail, Wal-Mart Stores Inc prepared its entry into India’s supermarket sector in 2010 with a $100 million investment into a consultancy with no employees, no profits and a scant $14,000 in revenue. Did a part of this investment act as a conduit to buy majority political support in favour of Wal-Mart retail venture in India as some suggest? Or, is it just a conjecture?

The inexplicable on- and off-the-Floor behavior of the two opposition blocks — Bahujan Samaj Party (BSP) and Samajwadi Party (SP) — in Parliament, which helped the UPA garner the necessary number to defeat the Opposition motion against FDI in multi-brand retail, raised more questions and answers, especially in the light of Wal-Mart’s various behind-the-scene activities, including the setting up of a separate joint venture consultancy with Sunil Mittal’s Bharti with which it already has a 50:50 joint venture in wholesale trade.

The consultancy firm, Cedar Support Services, might have been a more obvious selection a few months earlier: it began its corporate life as Bharti Retail Holdings Ltd, according to documents filed with the Registrar of Companies. The Cedar investment is now the focus of an investigation by RBI and the Enforcement Directorate (ED) to establish if Wal-Mart broke foreign direct investment rules by putting money into a retailer before the government threw open the sector to global players. The investment was in the form of convertible debentures. RBI asked ED to find out whether Wal-Mart violated the law by investing in a retail supermarket before foreign investment rules were relaxed.

The consultancy firm issued “compulsorily convertible debentures” to Wal-Mart Mauritius Holdings Co Ltd that was to be converted into 49 percent equity 18 months after the issue date. The conversion date has since been pushed back twice, to September 2013, after India’s relaxation of rules on retail investment. Cedar’s 2010 statement of accounts showed a transfer of Rs.1,075 billion ($32 million) to its retail unit, raising questions over whether Wal-Mart’s money went illegally into the retail business. Could a portion of the Wal-Mart investment have been utilized through back door to buy political support for its legal access to the Indian market?

The RBI had reportedly said both Wal-Mart and Bharti were being investigated because “Wal-Mart allegedly made the investment and Bharti allegedly received it”. Last month, Wal-Mart itself said it was looking into bribery allegations in several countries including India, Brazil and China. The Indian government received complaints alleging Wal-Mart invested in the retail industry before a September decision to loosen rules and that Wal-Mart and its partners Bharti Enterprises Pvt Ltd and Cedar Support Services Ltd have been engaged in retail trading that involves multiple brands. Wal-Mart also owns a 50 percent stake in a wholesale-venture with closely-held Bharti, which runs its own chain of more than 186 Easyday stores including supermarkets.

Wal-Mart’s seemingly desperate attempt to enter the Indian market makes a sham of the government claim that the MNC retailers are here to improve the lot of Indian farmers and small and medium enterprises (SMEs). The war-like game plans of MNCs such as Wal-Mart to grab business in India are rather scary. It appears that economic imperialism is in full play in India with the help of dishonest and short-sighted politicians playing as friendly pawns. Thanks to these politicians, softer side of business and enterprise is increasingly falling into the hands of MNCs while there is little FDI interest in making high-technology products in India.

Ahead of Wal-Mart, Cargill, a US food giant, has grabbed a sizeable market of Indian cooking medium. It is already a market leader in ghee and vanaspati, with acquisition of such established local brands as Ruth, Gemini, Nature Fresh, Purita and, now, Wipro’s Sunflower. There are many such instances. FDI controls the FMCG sector, sports goods market, cars, tyres, cement, electrical goods, shoes and leather products, to name a few. FDI has already made a systematic penetration into the financial sector. FIIs are already in control of the country’s mutual funds and secondary market, all with the consent of the government and its friendly opposition. There is no constructive debate on the country’s lack of success in attracting FDI in hardware and export manufactures.

Bribe or no bribe, Wal-Mart is here to do business as long as both its proponents and opponents remain pliable. A JPC investigation before an election-bound government is useless. The on-going JPC probe into Telecom scam has not made much progress. The JPC proved to be fruitless towards the end of the last NDA government. The next UPA government ignored the JPC report, penned by its own agriculture minister Sharad Pawar, on business practices of Coca-Cola and Pepsico, both US-based MNCs, which control the domestic soft drinks and packaged drinking water trade, along with others. If Enron could manage the rival Narasimha Rao and Atal Behari Bajpayee governments to extract highly controversial concessions against Indian consumers, there is no reason for the public to be on a high over a possible change of fate of Wal-Mart in India, following a judicial probe now, or after the next Lok Sabha polls. (IPA Service)


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