US-based Walmart, the world’s biggest retail chain, which already has a partnership with the Bharti group for cash-and-carry operations, would foray into India’s retail sector only if it is convinced the government’s multi-brand policy can be implemented on the ground, it is learnt.
This is despite the fact that Walmart can convert its convertible debenture investment into equity in a Bharti company by September.
An official said next week, the Department of Industrial Policy and Promotion was likely to issue clarifications sought by the sector on the government’s multi-brand retail policy.
While the clarifications might not substantially alter things, the Centre is trying to put in place a longer list of states that would allow foreign investment into the sector to make the multi-brand retail policy attractive for the likes of Walmart, Tesco and Carrefour.
A DIPP official confirmed Himachal Pradesh (now ruled by the Congress after the Bharatiya Janata Party government in the state was voted out in the Assembly polls) had approved the policy. It is expected Karnataka (another state where the Congress is in power, following the recent Assembly polls) would state its approval to the policy in writing soon.
When the policy was announced in September 2012, only 11 states and Union territories — Andhra Pradesh, Assam, Delhi, Haryana, Jammu & Kashmir, Maharashtra, Manipur, Rajasthan, Uttarakhand, Daman & Diu and Dadra & Nagar Haveli -- had backed the policy.
Meanwhile, clarifications on the multi-brand policy, primarily those related to sourcing 30 per cent of the value of the goods to be sold at the outlets of retailers from small and medium industries, back-end investment, and state-wise permission for chains, are awaiting the approval of Commerce & Industry Minister Anand Sharma.
In March 2010, Walmart had invested Rs 455.8 crore in buying compulsory convertible debentures in Cedar Support Service, a company owned by Bharti Enterprises, which controlled Bharti Retail.
Walmart has the option of converting the CCDs into equity by September 2013.
However, sources said the company could continue being invested in the Cedar CCDs beyond September, by extending the term. Walmart’s investment in Cedar has been probed by the Enforcement Directorate for alleged violation of the Foreign Exchange Management Act.
In a statement, a Walmart India spokesperson said the company had invested CCDs worth Rs 455.8 crore (Rs 4.55 billion) in Cedar Support Services, an Indian company that provided real estate advisory and facilities management services, etc.
“We are in compliance with India’s FDI guidelines.
"All procedures and processes have been duly followed and details filed with relevant Indian government authorities, including the Reserve Bank of India,” the spokesperson said.
“If the sourcing guidelines are tough to implement, Walmart, like any other big retailer, could remain stuck,” said a senior industry representative. Another issue troubling retail chains is the uncertain political scenario.
“In the case of an early election, there’s no question of any international retailer making any announcement at this point,” said another company executive.
If Walmart entered India’s retail segment, it was likely to extend its partnership with Bharti, said a source.
On the mandatory 30 per cent sourcing from small and medium industries, something seen as a hurdle by international retailers, the official said the policy wouldn’t be altered.
However, he added compulsory sourcing would only be for manufactured and processed food, not fresh products.
After the Cabinet approved the policy in September 2012, a senior Walmart executive had said the group would file an application with the Foreign Investment Promotion Board in 45-60 days.
However, no application has been filed yet.
Walmart could get the first-mover advantage if it ties up with Bharti for the retail venture.
Bharti Retail’s EasyDay already has about 200 stores, which could be used by the joint venture.
However, if the American chain wants large hypermarkets, it would have to scout for real estate and construct stores, a process that could take two to three years.