Walmart probe: ED seeks DIPP clarifications on retail FDI rules

The Enforcement Directorate, which is probing alleged violations of forex laws by retail giant Walmart through investments in two Indian firms, has sought clarifications from the Department of Industrial Policy and Promotions (DIPP) on the rules governing FDI in the multi-brand retail trade.

More specifically, the ED has sought clarifications on rules and regulations used to monitor foreign direct investment (FDI) before and during 2010, official sources said.

The agency is probing alleged "contravention" of forex rules in this case under provisions of Foreign Exchange Management Act (FEMA) on directions of the Reserve Bank.

As per the regulations, foreign multi-brand retail chains such as Walmart, Carrefour and Tesco would have to mandatorily invest at least $50-million (Rs250-crore) in back-end facilities.

But, it has now been explained that such investments need not be restricted to greenfield facilities alone and that they can invest the monies in existing facilities as well.

A report in the Business Standard on Thursday quoted DIPP secretary Saurabh Chandra as saying that a foreign retail chain was free to buy a brownfield (existing) facility but it would need to invest at least $50 million ''towards creating additional back-end infrastructure there''.

This means that a foreign retailer can tie up with an Indian retailer that already has back-end infrastructure, provided it makes the mandatory investment in creating additional facilities to strengthen the cold chain.

Walmart already had a JV with the Bharti group for wholesale outlets and the two have been in talks to extend the partnership in retail as well.

UK-based Tesco, which is in a tie-up with the Tatas for wholesale, may also widen the scope of partnership. Its representatives are now seeking clarifications on FDI rules.