Giant retailer Wal-Mart Stores Inc., did not break India’s foreign investment rules, according to a long-term government investigation which was recently concluded.
Specifically, Wal-Mart allegedly violated a prohibition against foreign investment in Indian supermarkets when in 2010 it bought $100 million of convertible debentures from a retail unit of Indian Conglomerate Bharti Enterprise Ltd.
A convertible debenture is a debt obligation that can be converted to stocks in the issuing company. In Wal-Mart’s case, the stocks would provide an equity position in Bharti’s Easyday supermarket chain.
But investigators from India’s Finance Ministry eventually found that Wal-Mart’s purchase was in compliance with the country’s statutory and central bank regulations governing indirect investments.
Wal-Mart cooperated with investigators and insisted that it violated no rules, regulations or laws in its purchase.
With Wal-Mart declared innocent of violating India’s laws, the company may now pursue its expansion plans in the nation of over one billion people and a burgeoning middle class — potential customers for Wal-Mart.
Current Indian annual retail sales run about $400 billion, and according to analysts, could run as high as $800 billion by 2019. So of course, this robust market has attracted strong outside interest.
But doing business in India has not been easy for US or foreign firms. Government red tape, tax obligations, legal obstacles, and investigations have impeded many a firm’s plans to expand in India.
Among the companies that have hit India’s governmental brick wall are General Electric, Nokia Corp. and Royal Dutch Shell PLC, whose expansion plans were bogged down by various restrictions.
Nevertheless, Wal-Mart and other foreign firms continue their efforts to persuade the Indian government to permit foreign investments.