Bharti-Walmart JV may come under lens for violation of FDI regulations

Bharti-Walmart joint venture may come under scanner for alleged violation of FDI norms in the multi-brand retail sector. It is understood that the Prime Minister's Office has forwarded the complaint of a CPI MP to this effect to the department of industrial policy and promotion (DIPP) asking it to examine the matter.

The allegation is that even before FDI was permitted in multi-brand retail in India, Walmart held a stake in Bharti Retail through Cedar Support Services. Bharti Retail runs the Easyday chain of stores. Bharti on its part has denied any wrongdoing.

The allegations were first made by Communist Party of India's Rajya Sabha MP from Kerala, MP Achuthan during the monsoon session of Parliament, following which West Bengal chief minister Mamata Banerjee demanded that the deal between the two companies be scrapped.

According to the charges on 'end-use violations', Walmart Holdings' R456-crore investment in Cedar Support Services in March 2010 was illegal. The structure of funding was designed to get around India's complete ban on FDI in multi-brand retail, which was incidentally permitted to the tune of 51% only last month.

Initially, amendments were made to the articles-of-association of Cedar allowing it to provide services as a real estate consultant. Since India allows 100% FDI in such consultancy services, the R456-crore investment was allowed in as compulsorily convertible debentures, giving Walmart the right to convert these to 49% equity at a later date.

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