The Indian government is considering relaxing its criteria to allow overseas retail companies into the country's domestic market even as Wal-Mart Stores, Inc. (NYSE:WMT) suffered a major setback in the country, as a government-appointed committee probing bribery allegations against the U.S. retail giant recommended a fresh investigation.

According to a Forbes report, the finance ministry proposed significant changes to the current foreign direct investment, or FDI, policy that was passed last September, and the new proposal is expected to be discussed during an inter-ministerial meeting of Indian officials on Monday.

The proposed changes include relaxing the pre-conditions for the entry of foreign retailers into India, if the overseas company does not hold a majority stake in the Indian venture. 

The government's decision to allow foreign companies into India's multi-brand retail space has been met with a lukewarm response, as investors consider the pros and cons of entering a complex market rife with regulatory hurdles. If approved, these changes would benefit foreign players like Wal-Mart who have been hesitant to start retail operations in India, blaming the government's pre-conditions that require companies to invest heavily on infrastructure and domestic sourcing, and also require the companies to seek approval from individual states. 

So far, only 11 states and union territories have agreed to allow foreign operators into the country's multi-brand retail space. India currently has 28 states, six union territories and the National Capital Region, which includes New Delhi and its suburbs.

Government Committee Recommends Fresh Probe Against Wal-Mart

A single-person committee, appointed by the Indian government, to investigate bribery and lobbying allegations against Wal-Mart, recommended the government to investigate the matter further saying that the retail giant had stonewalled its attempts to gain relevant information about the company’s lobbying activities in the country, according to media reports on Monday.

"Wal-Mart has not furnished the documents and information to the US Congress till date and has not provided this committee with full details sought by it. However, as and when Wal-Mart replies to the queries of the US Congress fully and an adverse report or disclosure indicating violations of Indian laws is made, the investigation should be carried out by the government," the report said, according to The Economics Times.

The report also called the responses given by Raj Jain, Wal-Mart's India chief who left the company last week, as “ambiguous" and misleading. 

The report observed that Jain had made contradictory claims in his oral testimony to the committee. It cited an example where Jain noted that Cedar Support Services -- a part of the Bharti Group with whom Wal-Mart has partnered with in India -- was incorporated in 2010, as compared to a written statement to the committee in which he said the company’s objectives were changed in 2009.

The probe was ordered by the government in December 2012, following Wal-Mart’s admissions in the U.S. that it had spent $25 million on lobbying and other matters including gaining “enhanced market access for investment in India."

However, Wal-Mart denied the allegations claiming that its D.C.-based lobbying expenses, revealed in recent routine lobbying disclosure statements, were fees paid to consultants in the U.S. and was in accordance with U.S. laws.

Bentonville, Ark.-based Wal-Mart started its wholesale cash-and-carry and back-end supply chain management operations in India in 2007, with Bharti Enterprises through their joint venture, Bharti Walmart Private Limited. 

Earlier in November, Wal-Mart announced that the company was investigating allegations of corrupt practices in foreign markets, including in India, as part of a worldwide review of its policies and practices to ensure compliance with the Foreign Corrupt Practices Act in the U.S. And, as part of the review, Wal-Mart and Bharti Enterprises suspended the chief financial officer and other staff belonging to their joint venture in India, pending the outcome of the investigation.

Wal-Mart is also facing a probe in India for allegedly violating the country's foreign exchange norms, and has been accused of “clandestinely and illegally" investing $100 million in India’s retail market through Bharti Enterprises from 2010.