By Nandita Bose
MUMBAI, July 8 Wal-Mart's India expansion is
When India announced last September that it would allow
foreign supermarket chains to take majority ownership of their
Indian operations, it marked a victory for Wal-Mart Stores Inc
, which had spearheaded efforts to open the market and
said its first retail store would open within two years.
Now, two sources within the Bentonville, Arkansas-based
company's Indian unit say it is unlikely to apply for its first
retail store licence before March 2015. The company has said it
needs a further 12 to 18 months after winning government
approval to open each store, which means its first retail outlet
in the country would open in 2016 at the earliest.
Meanwhile, Bharti Enterprises, its local partner in an
existing wholesale business, is reconsidering its commitment to
their joint venture given the heavy investment requirement and
distant prospects for returns, four sources with direct
knowledge of the matter said.
Bharti denied that it is looking to exit the tie-up and said
it remains fully committed to the joint venture, and a Wal-Mart
spokeswoman declined to comment on what she called speculation.
The latest developments stem from an ongoing internal
bribery probe relating to its Indian operations, still-evolving
rules governing foreign participation in India's retail sector,
and national elections due by May 2014 that could result in the
controversial retail reform being reversed - and any newly
opened supermarkets being shut - the sources said.
The delay and faltering partnership mean Wal-Mart may miss
out on the "first-mover" advantage in a country considered the
last great frontier for global retailers.
If Bharti pulled out, Wal-Mart would be forced to find a new
partner from a tiny pool of large Indian retailers to meet the
requirement that a local firm owns 49 percent of the business.
On June 26, Wal-Mart announced that Raj Jain, who led its
India push for the past six years, had left the company.
The world's biggest retailer named Ramnik Narsey, who
recently joined the company after heading the Indian operations
of Australia's Woolworths Ltd, as interim India chief,
without explaining the change. Jain did not answer repeated
calls to his mobile phone and the company declined to make
Narsey available for comment.
Narsey headed the consumer electronics wholesale business of
Woolworths in India for fifteen months, before it was sold to
the Tata Group, offering little insight into what his
appointment might mean for Wal-Mart's India rollout.
"It will take lot more than a management change to fix
things," said Devangshu Dutta, who heads Bangalore-based retail
consultancy Third Eyesight.
"Wal-Mart is being investigated for breaking entry rules,
bribery and these are problems that are much larger than any
individual or the changes he can quickly bring about," he said.
Wal-Mart has said it is in compliance with India's foreign
direct investment guidelines.
The U.S. retailer is currently investigating bribery
allegations in its Indian operations.
With 1.2 billion people and 90 percent of its $500 billion
in retail trade done at mom-and-pop shops, India is potentially
lucrative for retailers such as Wal-Mart, Carrefour SA
and Tesco Plc. But no global supermarket chain has
applied to enter because of regulatory uncertainty.
Wal-Mart's local joint venture partner Bharti, one of the
few large-scale retailers in India, is getting cold feet because
of the additional investment required to run retail operations.
Bharti, controlled by billionaire Sunil Mittal, wants to
consolidate its balance sheet and sharpen its focus on Bharti
Airtel Ltd, India's biggest telecoms operator, which
has $12 billion in debt, sources said.
"The JV is under review. Bharti is taking a closer look at
it because it wants to move out," said a senior official at
Bharti Wal-Mart Pvt Ltd, declining to be identified.
With high costs and narrow margins, most big retailers in
India lose money. The Bharti Walmart wholesale joint venture
lost 2.77 billion rupees ($48 million) on sales of 18.8 billion
rupees in 2011, according to the most recent regulatory filing.
"Bharti will continue to look at divestiture," said another
source with direct knowledge of the matter. "The plan is to make
it a focused business rather than the hands and legs going in
There is no certainty that Bharti will exit the wholesale
joint venture after the review, the sources said.
Wal-Mart's internal crackdown on bribe-paying has also
slowed expansion plans in a country where paying bribes is seen
as a standard cost of doing business, according to Indian
retailers and industry officials. Reuters reported in May that
retailers in India often pay so-called "speed money" to smooth
the process of obtaining dozens of permits.
The U.S. Foreign Corrupt Practices Act forbids American
firms from paying bribes. Wal-Mart launched a global review of
corruption last year after a New York Times report on bribery at
the company's Mexico operations. Its lawyers flagged India among
the countries with the highest corruption risk.
In November, Bharti Walmart, the company's India joint
venture, suspended employees including the chief financial
officer as part of an internal investigation into bribery
allegations in India.
More than 15 attorneys from U.S law firm Greenberg Traurig
are now working with the Indian business to help strengthen
compliance, a Wal-Mart spokeswoman said.
Wal-Mart, which has run wholesale stores in India since
2009, has not opened a new one since October despite its stated
plans to open eight in 2013. It has 20 such stores in India.
In response to questions from Reuters, Wal-Mart said its
India wholesale store rollout had encountered delays but did not
say how many it will open in 2013.
"We are in the process of implementing additional controls
for our new store permit and licensing program to ensure the
process is handled appropriately and in full compliance with all
laws and regulations," the Wal-Mart India spokeswoman said.
"As we develop and implement enhanced procedures for
obtaining licenses, there have been some temporary delays in
store openings," she said in an e-mailed statement.
At its Rajahmundry wholesale store in the southern state of
Andhra Pradesh, Wal-Mart has not sold fresh fruits and
vegetables since October as it has been unable to acquire a
licence from the state Agricultural Produce Marketing Committee,
according to a company source. APMC officials declined comment.
In the same state, Wal-Mart's wholesale store in Hyderabad
is only open six days a week because it has been unable to
secure a 365-day operating licence, the person said.
In both cases, according to the company source, the licence
has been held up because Wal-Mart won't pay a bribe.
"If you do not pay a bribe, who will do your work in this
country? Have all the government officials in India become
honest overnight? Nothing has changed," the company executive
told Reuters, on condition of anonymity.
The Andhra Pradesh APMC and municipal officials declined