Home / Companies / People /  Wal-Mart’s India story pauses again

New Delhi: Wal-Mart Stores Inc. announced the sudden departure of Raj Jain after six years at the helm of its India business on Wednesday, adding that he would be replaced by Ramnik Narsey, who joined the company last month after heading Woolworths India.

“Ramnik brings significant management and leadership experience to the role," Scott Price, president and chief executive officer of Wal-Mart Asia, was cited as saying in a press release. “We remain optimistic about our business in India and look forward to our future in India under Ramnik’s leadership."

Wal-Mart said Jain was no longer “with the company", having joined it in 2006 and becoming head of the India business in 2007.

“During his tenure, our successful wholesale cash-and-carry, back-end services and consulting businesses were established," the release said, giving nothing away about the reason why he left.

Jain couldn’t be reached for comment. Wal-Mart declined to comment.

Wal-Mart entered India through a joint venture with Bharti Enterprises in 2007. Bharti Walmart Pvt. Ltd has since 2009 been operating wholesale cash-and-carry operations in India, a segment in which the government allows 100% foreign direct investment.

It operates close to 20 cash-and-carry stores in cities such as Hyderabad, Amritsar, Meerut, Agra, Lucknow and Jammu, among others.

Experts said there had been clear portents regarding a likely change at the top, given the sticky situations that the company occasionally found itself in, and the policy inconsistencies that gripped the Indian government with regard to overseas investment in retail.

“Wal-Mart had got such bad press in India with all the controversies surrounding the company that someone had to go. The CEO was conveniently displaced," said a retail and media practice consultant on condition of anonymity.

Much of this may have had little to do with the company’s behaviour, experts said. For instance, a disclosure that Wal-Mart was required to make under US law regarding how much it spent on lobbying lawmakers in that country was used by the opposition in India to step up attacks on the government over corruption. That led to an inquiry being ordered by the Indian government into Wal-Mart India.

The inquiry report hasn’t been made public but Business Standard reported last month that no irregularities had been found.

In a separate case, in November 2012, long-pending inquiries into its structure came under the scanner of the Enforcement Directorate (ED) for alleged violations of foreign direct investment (FDI) rules, on a reference from the central bank.

Mint reported in November that the department of industrial policy and promotion (DIPP) had in the previous month asked the Reserve Bank of India (RBI) to investigate if Wal-Mart had violated FDI norms by investing in a retail company of the Bharti Group.

Analysts said this may have arisen because of a so-called press note issued by the government that had effectively allowed existing foreign investment limits in multi-brand retail to be breached. Eventually, the government allowed FDI in multi-brand retail, such as supermarkets, but with various caveats in September last year.

A retail practice head at a consulting firm said, however, that no large corporation would enter a market without getting its structure cleared or vetted by the best legal experts.

“So it is difficult to see how Wal-Mart may have flouted FDI norms. From the outside, Raj Jain’s exit seems unfortunate," this person said.

Another consultant said the “company was doing fine from the business perspective. Both Easyday and Walmart’s Best Price stores expanded."

Easyday is the retail venture set up by the Bharti group, while Best Price is its joint venture in India with Wal-Mart, that operates the cash-and-carry brand.

In March 2011, Wal-Mart began conducting a worldwide review of its policies, practices and internal controls for compliance with the US Foreign Corrupt Practices Act (FCPA), a law that covers the bribing of officials overseas. It said on 15 November last year that inquiries were under way regarding potential FCPA violations in a number of foreign markets including, but not limited to, Brazil, China and India.

This was followed by Bharti Walmart suspending five executives on grounds of alleged corrupt practices in November, including the company’s chief financial officer. There has been no further light shed on the matter by the company.

Overseas investment in retail is controversial in India because of the widespread resistance to it. Those opposed to it regard it as hurting local businesses and the employment prospects of those who work in the so-called unorganized retail sector. Those who back overseas investment in retail say it will mean remunerative prices for farmers besides leading to the creation of more jobs.

The government’s approval of FDI in retail had to be put on hold for several months because of political opposition and when it came, was loaded with conditions, many of which have proven to be too cumbersome for some potential investors.

“There is still a lack of clarity on the clauses that come with the policy," said an expert on FDI policy, on condition of anonymity.

Issues pertaining to back-end infrastructure, creation of fresh infrastructure, limited number of states allowing multi-brand operations have deterred investors, he further added.

This, coupled with a challenging macro-economic environment, uncertainty about the 2014 general elections and some of the reasons mentioned above have made things difficult in India for Wal-Mart.

Jain’s exit is being regarded by some as a culmination of these multiple issues.

“There is a dual pressure that the company was facing— one from the ministry or the government to bring in more funds and speed up retail operations and on the other hand from the parent company to ensure that policy lag does not halt progress," said a retail consultant, who didn’t want to be named.

Another expert said Wal-Mart is being subjected to first-mover “disadvantage", much in the manner of Enron Corp. with respect to overseas investment in power in India.

“You take a lot of flak because you are the first," said a trade expert. “None of the allegations have been proven yet."

Given the conditions attached, he doesn’t see any investors wanting to enter India in the multi-brand retail sector.

To be sure, the new appointment may signify that the company is planning to take its strategy to the next level, given that overseas investment to the tune of 51% is now allowed in multi-brand retail by the government, although it’s up to individual states to take a call on whether they’ll accept such ventures in their jurisdictions.

“In large corporates, going for a change at the top level would signal a shift in strategy," said Santosh Desai, managing director and CEO, Future Brands Ltd. “If a person has been at the helm for three years or more the chances are that they have served a need for that period and now there is another set of skills required for the business to grow."

It’s not immediately apparent what Jain’s plans are going to be. Industry executives said he may attend a high-level round table of foreign multi-brand retailers with commerce minister Anand Sharma on Thursday as an “independent retailer" in the capital.

Sapna Agarwal contributed to this story.

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