US giant Walmart quits India after venture ends
Walmart says India's foreign investment rules were partly to blame for the split.
This photograph taken on August 6, 2007 shows India's Bharti Enterprises managing director Rajan Bharti Mittal (L) shaking hands with Raj Jain, president of US company Wal-Mart's operations in India, during a press conference in New Delhi. PHOTO: AFP
MUMBAI:
Walmart and Indian firm Bharti announced Wednesday they were ending their retail partnership, with the US giant saying India's foreign investment rules were partly to blame for the split.
The companies said they would "independently own and operate separate business formats", ending an alliance aimed at building Walmart's presence in India's potentially lucrative retail sector.
The world's biggest retailer has operated since 2007 in India as a wholesaler via its partnership with Bharti, but it was restricted from selling directly to consumers.
Walmart said it wanted to operate supermarkets in India after New Delhi moved last year to open up the retail sector to foreign companies as part of steps to boost a sharply slowing economy.
But the group has been frustrated by the government's new conditions for foreign direct investment (FDI), an internal bribery probe and the faltering relationship with Bharti, owner of India's top mobile phone firm.
Walmart told AFP in an email the decision to split with Bharti was based on "external and internal factors, including the new FDI policy".
"Under the requirements contained in the new FDI policy Walmart could not invest in multi-brand retail through the existing Bharti Retail business," a Walmart India spokesperson said in the email, without elaborating.
Walmart must now find another local partner to own 49 percent of the business if it plans to push ahead with operating supermarkets under the government's rules.
A year ago, New Delhi allowed foreign supermarkets to establish 51 percent joint ventures in the country as part of a drive to seek outside investment, but so far none have applied.
Analysts said the split showed the government must do more to improve FDI rules to attract overseas companies and spur economic growth, which has slackened to a decade-low.
"This could further caution international firms looking to enter India," said Saloni Nangia, president of consultancy firm Technopak, of Walmart's announcement.
"From a destination perspective, foreign firms want to be in India. But from a policy and doing-business perspective, it is different. The government needs to do more to facilitate this," she said.
Opposition lawmakers in the past have expressed concern over Walmart's entry, saying it would hurt local "mom and pop" stores.
With the Bharti venture ending, Walmart is not expected to rush into making fresh India investments, said Sonam Udasi, head of research with IDBI capital.
"Walmart will study the on-the-ground situation, particularly future government policies in retail," he told AFP.
Walmart said in July it was unable to meet the government's requirements -- stipulating that 30 percent of its products must come from local small-scale industries -- for it to open retail stores.
A senior Indian commerce ministry official late Wednesday said the government had "no plans to relax the 30 percent local sourcing norms".
India's FDI policy "cannot be company specific," the official, Saurabh Chandra, told the Press Trust of India.
Under the breakup terms, Walmart will acquire Bharti's stake in the wholesale business, giving it 100 percent ownership.
Nangia said Walmart is likely to stay focused on its cash-and-carry business, which would help to build up its supply chain to support any future retail venture.
Scott Price, president and chief executive of Walmart Asia, said the company would "continue to advocate for investment conditions that allow FDI multi-brand retail in India".
Walmart and Indian firm Bharti announced Wednesday they were ending their retail partnership, with the US giant saying India's foreign investment rules were partly to blame for the split.
The companies said they would "independently own and operate separate business formats", ending an alliance aimed at building Walmart's presence in India's potentially lucrative retail sector.
The world's biggest retailer has operated since 2007 in India as a wholesaler via its partnership with Bharti, but it was restricted from selling directly to consumers.
Walmart said it wanted to operate supermarkets in India after New Delhi moved last year to open up the retail sector to foreign companies as part of steps to boost a sharply slowing economy.
But the group has been frustrated by the government's new conditions for foreign direct investment (FDI), an internal bribery probe and the faltering relationship with Bharti, owner of India's top mobile phone firm.
Walmart told AFP in an email the decision to split with Bharti was based on "external and internal factors, including the new FDI policy".
"Under the requirements contained in the new FDI policy Walmart could not invest in multi-brand retail through the existing Bharti Retail business," a Walmart India spokesperson said in the email, without elaborating.
Walmart must now find another local partner to own 49 percent of the business if it plans to push ahead with operating supermarkets under the government's rules.
A year ago, New Delhi allowed foreign supermarkets to establish 51 percent joint ventures in the country as part of a drive to seek outside investment, but so far none have applied.
Analysts said the split showed the government must do more to improve FDI rules to attract overseas companies and spur economic growth, which has slackened to a decade-low.
"This could further caution international firms looking to enter India," said Saloni Nangia, president of consultancy firm Technopak, of Walmart's announcement.
"From a destination perspective, foreign firms want to be in India. But from a policy and doing-business perspective, it is different. The government needs to do more to facilitate this," she said.
Opposition lawmakers in the past have expressed concern over Walmart's entry, saying it would hurt local "mom and pop" stores.
With the Bharti venture ending, Walmart is not expected to rush into making fresh India investments, said Sonam Udasi, head of research with IDBI capital.
"Walmart will study the on-the-ground situation, particularly future government policies in retail," he told AFP.
Walmart said in July it was unable to meet the government's requirements -- stipulating that 30 percent of its products must come from local small-scale industries -- for it to open retail stores.
A senior Indian commerce ministry official late Wednesday said the government had "no plans to relax the 30 percent local sourcing norms".
India's FDI policy "cannot be company specific," the official, Saurabh Chandra, told the Press Trust of India.
Under the breakup terms, Walmart will acquire Bharti's stake in the wholesale business, giving it 100 percent ownership.
Nangia said Walmart is likely to stay focused on its cash-and-carry business, which would help to build up its supply chain to support any future retail venture.
Scott Price, president and chief executive of Walmart Asia, said the company would "continue to advocate for investment conditions that allow FDI multi-brand retail in India".