Wal-Mart seeks changes in India’s FDI norms

US retail giant Wal-Mart is lobbying with the Indian and US governments to persuade India to relax the rules prohibiting foreign investment in consumer-facing multi-brand retail channels. According to reports, Wal-Mart is seeking trade talks between the US and Indian governments

in a bid to relax strict foreign investment laws. Lobbying disclosure statements filed with the US Senate reportedly revealed that Wal-Mart has spent $11milion on lobbying for its Indian business interests over the past two years. A spokesperson for the US retail giant said the company is optimistic that the country will open up to international investments in the near future.

Wal-Mart’s presence in India as of now has been limited to business-to-business wholesale market and back-end supply chain management business via a joint venture with the Indian retailer Bharti Group. Wal-Mart has been trying unsuccessfully, for a number of years, to enter the Indian retail market but has been hindered by the Indian FDI regulations that do not allow multi-brand FDI in the retail sector which is Wal-Mart’s specialty.  

Indian FDI norms seem to be a major hindrance and foreign companies are now apprehensive of opening stores here. Recently, global private equity powerhouses, baffled by recent FDI guidelines, turned jumpy about fresh investments in Indian retail, throwing into disarray the growth ambitions of one of the country’s fastest-expanding segments.  

The confidence of PE firms such as Blackstone Group, TPG Capital and Bain Capital in Indian retail is fast eroding after the government’s checks on FDI in wholesale trade and retail are being interpreted as a blanket ban on foreign investments say top industry officials and financial analysts. The absence of a distinction between strategic and financial investors has sown seeds of doubts in the minds of PE investors, they said. The result is that the flow of money into a voracious sector comprising supermarkets, malls and hypermarkets has come to a grinding halt. Some industry officials estimate that PE funds are dithering on commitments of more than Rs 15,000 crores.     

With a population of over a billion, the Indian retail market is the largest in the world and is viable for mega investments. US based Wal-Mart stores being one of the world’s highest revenue grosser with over $400 billion of cumulative per annum sales and a presence in 15 countries, is currently lobbying hard with congressmen to help it expand its business into India, probably through bilateral talks between the related authorities of the two countries. If successful, this would be a major foreign direct investment inflow into India, which has become a major FDI magnet amongst the developing nations.

Retail can be an engine of growth not just in urban India but also in Tier-II-III towns, offering more job opportunities and helping families to save money so they can live better. FDI in retail can only help accelerate this process.