How Wal-Mart got a foot in the door of India's retail market
Wal-Mart Stores Inc prepared its entry into India's supermarket sector in 2010 with a $100 million investment into a consultancy with no employees, no profits and a scant $14,000 in revenue. The company, called Cedar Support Services, might have been a more obvious selection four months earlier: it began its corporate life as Bharti Retail Holdings Ltd, according to documents filed with India's Registrar of Companies.
The Cedar investment is now the focus of an investigation by India's financial crimes watchdog into whether Wal-Mart broke foreign direct investment rules by putting money into a retailer before the government threw open the sector to global players.
Wal-Mart said it was in compliance with India's FDI guidelines, and had followed all procedures. It said India's central government had sought "information and clarification", which Wal-Mart has provided.
However, several lawyers said the transaction appeared to violate at least the spirit of India's long-standing ban on foreign investment in supermarkets, which it only lifted in September 2012. When Wal-Mart made the investment in 2010, it
was legal for foreigners to own consultants but not retailers, so the shift in Cedar's business description raised eyebrows. "This is a complete camouflage," said Hitesh Jain, a senior partner at ALMT Legal in Mumbai who advises retailers but is not involved with Wal-Mart. "It can be looked at as a violation of
FDI rules because Cedar also operates supermarkets, which was a restricted sector back then." The law, however, is murky. Others stressed that the way Wal-Mart structured the transaction might
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