Walmart Operating in India with Front, Says Vandana Shiva
Posted on July 16, 2012 by jway
Walmart encountered a new legal challenge this week in India, a country where the company has ambitious expansion plans. In light of the fact that foreign direct investment (FDI) in retail is prohibited* in India, the company has been accused of covertly operating retail stores, in “blatant violation” of the law.
Well-known environmental and social activist Dr. Vandana Shiva formally filed a legal petition (in India, termed “public interest litigation” or PIL) for investigation of Walmart’s business practices as well as the practices of Walmart’s India joint venture partner, Bharti Retail. The Delhi High Court has sent notices to the two companies and to the central government, seeking replies to the petition.
In 2007 Walmart entered into a franchise agreement with Bharti Retail, the retail arm of Indian conglomerate Bharti Enterprises, through which Walmart says it provides “back-end support” to Bharti’s 187 EasyDay grocery and convenience stores. The two companies have also operated wholesale cash-and-carry stores, called Best Price Modern Wholesale, since 2009 through a joint venture. The 17 wholesale stores are only permitted to sell goods to other businesses, not to the general public.
The PIL that Shiva filed states that “many established Indian companies are actually fronting for foreign trading companies,” like Walmart, “so as to give the foreign partner majority control and economic interest in the Indian retail sector, thereby circumventing the FDI prohibition of multi-product trading in the retail sector.”
The petition goes on to allege that the “retail giants are depriving Indian small traders of their ‘solitary source of livelihood.’” Dr. Shiva is one of many Indian activists who have resisted the push to allow for foreign ownership and investment in India’s retail sector, a hot topic in Indian politics since the governing coalition’s failed attempt to relax retail FDI restrictions in the fall.
Those against FDI reform worry about the welfare of small family-owned businesses, akin to the mom-and-pop shops that have closed their doors in recent decades as Walmart has grown in the United States. Their nervousness is not without justification; there is speculation that Walmart would quickly snap up ownership of the 187 EasyDay stores if FDI laws changed, positioning the company to expand at a rapid pace.
The legal challenge comes at a time when Walmart’s India operations, still in the red, are under scrutiny due to the Mexican bribery scandal. In June, Walmart announced that it has expanded its internal review of Foreign Corrupt Practices Act Compliance to four countries apart from Mexico – India, South Africa, China and Brazil. These countries represent four large emerging markets crucial to the company’s international growth prospects. Walmart and other foreign wholesalers were also accused of violating land use policies in the Indian state of Rajasthan last month.
*However, FDI is permitted in retail stores selling only one brand of goods, eg Ikea or designer clothing stores.
This post was written by Rebecca Cassler.