Speculation mounts that Wal-Mart preparing to exit India JV

Speculation mounts that Wal-Mart preparing to exit India JV

Speculation has continued to mount that US retail giant Wal-Mart Stores could be preparing to dissolve its joint venture with Bharti Enterprises in India.

Scott Price, CEO of Walmart Asia, reportedly told Reuters the JV is "not tenable" given India's regulations governing foreign direct investment in consumer-facing multi-brand retail operations.

"We created a franchise in retail with Bharti in the hopes that there could be a potential freeing up [of foreign direct investment] that would allow it to potentially be the base of the business. But frankly, the FDI has passed," he said.

Wal-Mart and Bharti formed their wholesale business in 2007. The first Best Price Modern Wholesale outlet opened two years later. The venture now has 20 wholesale stores in the country.

Speaking to Bloomberg News today, Price seems to have moderated his comments somewhat. 

"We are having very productive discussions with Bharti, there are multiple options and we are working through what those options might be. I would hope probably in the next several weeks we will reach an agreement with them. But no matter what happens, there is no pressure in the relationship," Price said.

However, the Wal-Mart executive reiterated that the group is unhappy with FDI regulations.

"Until the sourcing issue is resolved, I believe no foreign company will apply and can comply. We are not interested in investing until that's clear," he said.

Last September, India relaxed controls on foreign investment in the retail sector, meaning overseas companies are allowed to own 51% of multi-brand, consumer-facing stores.

However, the new FDI legislation does enforce a number of requirements on international retailers that are not placed on domestic operators. These include a stipulation that  30% of manufactured or processed goods must be procured locally from an Indian SME. The 30% threshold refers to the front-end store and a foreign investor could not "engage in any other form of distribution".

Wal-Mart was not immediately available for comment at time of press.