'Walmart and Bharti have hoodwinked the government'

M P Achuthan, Rajya Sabha member from Kerala who blew the whistle on the company flouting FDI norms in India, has submitted a petition to the Prime Minister's Office, revealing details of how Walmart violated norms while investing $100 million in Cedar Support Services, a company that was earlier known as Bharti Retail Holdings. He speaks to Manu A B about the MNC, and how FDI in retail will affect India.

Walmart, the world's largest retailer's plans to open stores across India has suffered a severe setback with allegations of flouting foreign direct investment norms and bribery charges doing the rounds. These allegations have rattled the company's business prospects in India.

These allegations also raise serious questions about Walmart's business operations and ethical practices, as the company is set to make a major headway into the lucrative retail market in India.

Bharti Walmart, the 50-50 joint venture for cash-and-carry business, has suspended five officials as part of an ongoing global investigation by the US retail giant Walmart against alleged corrupt practices in India.

M P Achuthan, Rajya Sabha member from Kerala who blew the whistle on the company flouting FDI norms in India, has submitted a petition to the Prime Minister's Office, revealing details of how Walmart violated norms while investing $100 million in Cedar Support Services, a company that was earlier known as Bharti Retail Holdings.

Achuthan alleges, "Walmart and Bharti have connived and hoodwinked the government and the Reserve Bank of India. It is a criminal conspiracy to deceive the nation."

Following Achuthan's complaint, the PMO has ordered a probe by the Enforcement Directorate into the dealings between Walmart and Bharti group owned Cedar Support Services.

Achuthan is not ruling out the possibility of government officials conniving with the company to bend rules in its favour. "These MNCs cannot do malpractices without the collusion of government officials,'' he says.

He is also very critical of Walmart's entry into the lucrative Indian retail market.  "After all they will dump cheap Chinese goods into our markets, kill our retail traders, increase unemployment and thereby create social unrest in India," Achuthan says.

M P Achuthan reveals how Walmart violated norms in India and why we must oppose FDI in the retail sector.

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How has Walmart violated norms in India?

After I heard allegations about Walmart, I did a close study of the balance sheet and audited reports of Cedar Support Services filed with the Registrar of Companies.

Its functioning, investment pattern and profits raised several doubts. I was shocked to find that Walmart blatantly violated norms by investing $100 million in Cedar Support Services.

Cedar Support Services is a 100 per cent holding company of Bharti Enterprises. The company earlier known as Bharti Retail (Holding) Pvt Ltd, could not have received any FDI without Foreign Investment Promotion Board approval under the FEMA regulations.

So the object clause was amended in 2009 and the name of the company was changed to Cedar Support Services, to project it as a company that offers services in real estate consultancy, as 100 pc FDI in consultancy services is allowed under the automatic route.

The funding took place in 2010 when FDI in multi-brand retail was not allowed. The fact that the entire fund was routed to fund the retail activities of Bharti Enterprises, is clear.

To create the impression that Cedar is a real estate consultancy, an income of Rs 8 lakh was shown, that too received from group companies only.

The most interesting part is Cedar did not have even one employee to offer consultancy. Besides this, the Reserve Bank of India has not been informed of this investment. If the money had been invested through the automatic route, then the RBI should have been informed.

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What are the details of Cedar's balance sheet? Were the funds diverted for retail business?

As per Cedar's balance sheet from January 1, 2011, to December 31, 2011, it is reported that the company issued 455,800,000, zero per cent compulsory convertible debentures with a face value of Rs 10 each convertible into 425,985,859 equity shares of Rs 10 each at a premium of 70 paise per share.

These debentures are unsecured and convertible at the option of Walmart Maurtitus Holding Company within 18 months of the date of issue, which has been extended to 30 months as per the amendment of the debenture subscription agreement dated September 26, 2011. On conversion the subscriber will have 49 pc equity in the company.

This investment, which should have been used for consultancy services, was used by Bharti Retail to expand its retail operations.  It is quite evident from the audited reports Cedar has filed with the Registrar of Companies.

Meanwhile, the last two years, Easyday stores have grown considerably. The number of Easyday stores nearly doubled after the company received this investment.

What legal action can be taken against Bharti-Walmart if proven guilty?

Legal experts state that Bharti-Walmart can be fined up to three times the amount they had invested without notifying the RBI or face a ban on opening new stores in India.

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What action should the government take?

The government should investigate the matter thoroughly and initiate penal proceedings against Walmart and Bharti Group under the Foreign Exchange Management Act.

The government should scruntnise all investments by foreign retailers in India.

Why do you oppose FDI in retail?

Why should we bring in ruthless multinational giants into our country? Studies conducted in several countries prove that FDI in retail is a bane than a blessing.

People in the United States are up in arms against Walmart for unfair trade practices. The worst hit in India will be the manufacturing sector as these MNCs will source cheap products from China and dump it in India.

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What will be the impact of FDI in multi-brand retail in India?

FDI will hit our retailers very badly. We already have Indian corporates running big supermarket chains. There is no need to get more MNCs, who will only kill our local traders and lead to large-scale unemployment.

A Walmart store on an average requires only 214 people. How will they generate employment in India?

The claims of increasing jobs is India is a farce. Walmart faces issues of labour malpractices in the US itself. Walmart, the biggest symbol of retail in the world, is facing probe on bribery allegations not just in India, but also in Brazil and Mexico.

Can the opposition stall FDI in retail?

The opposition cannot stall FDI in retail. The United Progressive Alliance government seems to have the majority. Parties like the Dravida Munnetra Kazhagam, which were earlier opposed to this, have now agreed to support the government. The double standards of these parties have been exposed.

However, being a democracy, the government should consider matters that are in the best interest of the nation and its people. We should not be lured by MNCs to risk our businesses and the livelihood of people.

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India's big corporates have started big retail outlets, but small grocery stores continue to do good business?

Yes, we have enough big and small stores in India. There is no need to invite more giants into the fray. They will have a predatory pricing policy.

Lower prices will be there initially to weed out competition but in the long run they will not be able to sustain low prices.

Foreign retailers say their presence would help consumers with lower prices and better quality. Why do you think it will not help consumers?

They promise a lot of things but the reality is different. The fresh vegetables that you get at a local market at a cheap rate will be available in these stores with a good packing. They promise better quality.

It will be the same thing that you buy from the market at a higher price. But they know how to make it attractive and sell it at a higher rate citing better quality.

They claim to source 30 per cent locally, but what about the 70 per cent that is sourced from abroad? India should not be a dumping yard for these MNCs.

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Why do you think foreign retailers will not help farmers?

These corporate giants have just one agenda, to mint money. They are not here to help our economy, our farmers or consumers. Social work is not their idea.

The turnover of retail giants like Walmart is much higher that the allocation of India's annual budget. They have money power and they think they can get away with anything in connivance with the government authorities.

Finance Minister P Chidambaram recently said that coconut prices will increase if Walmart comes to India. This is ridiculous, how can a Walmart store that will stock few hundred coconuts increase the prices?

Do you think foreign retailers will indulge in malpractices to win in a competitive market?

Walmart is facing a bribery probe in Mexico and Brazil. In India, there are reports that suggest lobbying and bribing to the tune of several crores to speed up the whole process. A probe is going on, their officials have been suspended.

India being such a huge market offers them a great opportunity to exploit. It's our job to see that these companies don't usurp our retail sector.

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Some critics say the opposition and unions always oppose anything newly introduced. Trade unions had opposed computerisation as it would lead to job losses, but it did not happen. What are your views?

We cannot compare the two because FDI in retail has proved to be a disaster in several countries. Knowing this, we should not invite more trouble.

Thousands of people will lose their jobs leading to social unrest while MNCs will make hay. People allege that we oppose everything, but we are not opposed to FDI in other sectors, where it brings in technology or creates better avenues and job prospects for people.

How can we ensure better prices to farmers?

The government should take action to see that the farmers don't suffer. Inviting MNCs to help farmers sell their produce is a ridiculous proposition. The government should offer a minimum support price for farmers, offer more incentives to the agriculture sector and offer better facilities so that the agriculture sector progresses well.

MNCs can offer better storage facilities so won't we benefit as wastage will be avoided?

The government has to spend around Rs 20,000 crore (Rs 200 billion) to improve our storage and ware housing facilities.

We do not need MNCs to do this job. We can easily prevent rotting of grains and wastage of perishables. We just need to plan well and invest in improving our existing facilities.

Our government and financial institutions must be liberal in offering funds to support to small retailers for improving facilities and upgrading their infrastructure.