Kick-back scandals tarnish UPA’s Retail FDI
BOWING under the Opposition’s pressure, the Manmohan Singh government has finally agreed to order a probe into lobbying practices by Walmart Stores Inc.(WMT.N). There have been allegations that the giant retailer had pressed U.S. lawmakers to help gain access to foreign markets. Parliamentary Affairs Minister Kamal Nath told parliament a retired judge would be appointed to lead an investigation “pertaining to Walmart’s lobbying”.
Walmart disclosed in a report to the U.S. Senate that it had paid $25 million (Rs 125 crore) over four years to lobby American lawmakers to help gain access to overseas markets, including India.
The Centre’s modus-operandi to push the FDI in multibrand retail made it evident that there was more than what met the eye in this contentious deal. The report spurred opposition lawmakers, who oppose Walmart’s entry into India, to call for an inquiry into whether any money was spent in India, even though the disclosure filing only referred to lobbying activities in the United States.
In its disclosure filed with the US Senate, Walmart has said it spent close to $25 million (about Rs 125 crore) since 2008 on its various lobbying activities, including on the issues related to “enhanced market access for investment in India”. However, Bharti Walmart issued a statement, saying the opposition allegations of corruption are “entirely false”. It said the amount mentioned in its disclosure is a “compilation of expenses associated with staff, association dues, consultants and contributions spent in the US.”
The Walmart lobbying issue had triggered a political storm with the BJP demanding a statement from Prime Minister Manmohan Singh in Parliament and the CPI-M and SP joining it in seeking an independent probe into the “serious allegations” of bribery.
“BJP would like the PM to explain why he did not initiate inquiry and what he proposed to do now when it has become evident that multi-brand retail FDI has come on the shoulders of lobbying and bribery,” BJP chief spokesperson Ravi Shankar Prasad said.
Senior BJP leader and former party president, Venkaiah Naidu said, “We demand that Prime Minister should come to the House and make a statement on the issue. It should also be followed up with an independent inquiry.”
There have been reports that following the government’s decision to allow 51 per cent FDI in multibrand retail, Walmart had gone on record saying that it would open stores in India in the next two years.
However, without a bilateral investment treaty (BIT) between India and the US, Walmart’s investments in India are likely to be governed solely by domestic laws. A report in an English daily stated that ” if India and the US enter into a BIT, Walmart, reportedly being probed for violating forex laws in India, will have the protection of the treaty in its interactions with every organ of the Indian state, whether it is the executive, the legislature or the judiciary.”
It may be recalled here that following the return of Barack Obama both India and US are expected to speed up the process of bilateral engagement between the two nation.
Incidentally the negotiations for an India-US BIT have been ongoing since 2008-2009. There have been allegations and reports that Walmart has been investing heavily in India even when there was a ban on FDI. Certain reports claim that Walmart has allegedly invested $100 million in a domestic unit owned by Bharti Enterprises, its wholesale joint-venture partner. It may be recalled that the retail giant faces charges of tax evasion and money laundering in Mexico.
In this context protection of BIT could make a huge difference to Walmart in India. In India so far only nine states have decided to allow foreign retailers. But any change in electoral politics in these states could block Walmart’s attempt to set shop in these states. Under India-US BIT, (if the agreement is signed) Walmart could drag India into investor-state arbitration under the India-US BIT.
An article NITI Central pointed out the superstore will kill small time retailers. “Superstores require huge spaces – for building as well as for parking. A superstore may need anything between 100,000 to 250,000 square feet of building space and almost 3 times that for parking space. Given the compact nature of our cities, it would be impossible to find such open spaces within cities’ normal residential limits. Even if such spaces can be found, superstores may not go for them as customers normally like to avoid traffic and congested areas. When a superstore is opened in the outskirts of a city, isn’t it going to attract customers from the surrounding villages and suburban areas? Retailers from the surrounding villages will suffer as a result, “ the article stated.
It further pointed out that “another side effect of superstores in the USA is the downfall of downtown areas. Once blustering retail shopping hubs, many such locations have now turned into ghost towns.”
The statistics show that “in the USA, between 1992 and 2002, the grocery industry lost 13,000 stores and thousands of jobs as per Retail Forward. As per Iowa State University study, during the first decade after Walmart arrived in Iowa, the State lost 555 grocery stores, 298 hardware stores, 293 building supply stores, 161 variety stores, 158 women’s apparel stores, 153 shoe stores, 116 drug stores, and 111 men’s and boys’ apparel stores.
Fast forward these numbers 10 years from now for any given Indian city – say Pune – and think about the impact on the city as well as surrounding suburbs and villages.” A blog in the socialistwork.org reads : “The little towns are dead, the small towns are dying, the small cities, well…wouldn’t it just be easier if we gave up and made Walmart into a kind of universal government store? We could just all line up once a week for our flour and our sugar, coke and chips and chocolate, a pair of cheap plastic shoes twice a year, some frozen chicken—because, folks, that’s exactly where we are headed if we don’t fight Walmart now, and others like them pretty damn quick.”
In India like across the globe, it is not going to stop with Walmart. IKEA, a home- furnishing and kitchen store, has already made announcements to enter India. Others like Home Depot (building material, construction), Office Max (school and office supplies), Best Buy (electronics and appliances), Walgreen (drugs and cosmetics) among others are waiting in wings to reach Indian shores.
And as small time retailers burn, like Nero, the Prime Minister, Dr Manmohan Singh will play the lyre.