India’s Finance Ministry cleared Wal-Mart Stores Inc. (NYSE:WMT) of allegations that it violated a ban on foreign investment in supermarkets, the Wall Street Journal reported Thursday.
In 2010, Wal-Mart Stores purchased $100 million in convertible debentures, acknowledgements of debt, from Indian conglomerate Bharti Enterprises Ltd. Indian authorities began investigating the purchase because the debentures could be converted into a stake in the Bharti arm that operates a supermarket chain called Easyday.
However, Indian officials concluded Thursday that the deal between Wal-Mart and Bharti was in line with their central bank rules and other regulations that allow indirect investments.
Bharti and Wal-Mart became partners in 2007 to carry stores in India under the name Best Price Modern Wholesale. They jointly built 20 stores in major cities across India. Last week, the companies dissolved their alliance, which was a functional integration that kept the two companies legally separate.
Bharti plans to expand to 1,000 stores in the next two years, free from Wal-Mart’s conditions, like designing stores in a box rather than rectangle format, the Hindustan Times reported. Wal-Mart had hoped to liberalize the Indian market through its partnership with Bharti, but when this didn’t happen, the relationship was no longer desirable, Scott Price, president and CEO of Wal-Mart Asia, told Forbes. India’s government requires retailers to source 30 percent from small suppliers, which is difficult for large retailers. Wal-Mart will buy out Bharti’s stake in their joint venture and operate the 20 Best Price superstores, but it is awaiting a more open retail market before expanding further in India.
Wal-Mart has been looking for ways to expand in India, which has a fast-growing middle class and a population exceeding 1 billion people. India now earns more than $400 billion in retail sales a year, and analysts predict those sales could more than double in the next six years.