Indian authorities are expected to clear Wal-Mart of alleged violations of rules governing foreign direct investment in the country.

According to local reports, citing people familiar with the situation, India's Enforcement Directorate (ED) has concluded that Wal-Mart did not contravene FDI regulations in its joint venture agreement with Bharti Enterprises.

The two companies had worked together to establish a consumer-facing supermarket chain, called Everyday, as well as the Best Price Modern Wholesale business. However, earlier this month the partnership was dissolved. Wal-Mart took full ownership of the cash-and-carry arm while Bharti took control of the consumer business.

Industry observers have suggested the complex nature of India's FDI rules were likely to have played a significant role in the break-up of the joint venture. Speaking to just-food at the time, Arvind Singhal, chairman at Technopak Advisors, said the partnership was complicated by the limitations placed on investment due to FDI rules.

"The joint venture was like trying to run a three-legged race with one leg of each partner tied together," Ainghal explained. "Not much progress has been made - if any - by Wal-Mart...because investments are needed in both the areas but Wal-Mart cannot invest into the front end."

The ED's finance division launched an investigation in 2010 into Wal-Mart's purchase of US$100m in convertible debentures, which can be converted into stock.

Reports suggest that the investigation has now been drawn to a conclusion and the ED has determined that the debentures were not intended as an investment - and, therefore, were not a transgression against FDI regulations in place at the time.

just-food was unable to reach anyone at the ED at time of press. 

Responding to the news, a spokesperson for Wal-Mart emphasised that the US retailer has cooperated fully with the ED investigation. However, the retailer said that the probe's findings are yet to be made public.

"We respect the process and have cooperated with the government throughout the Enforcement Directorate's review and investigation. To our knowledge, the ED has not yet officially released its findings, so we have not seen the result of its review and cannot comment," the spokesperson said.

When Wal-Mart delivered its capital expenditure plans for the coming fiscal last week, the world's largest retailer said it was reducing its spending in India and slowing the pace of store openings in the market. The company has indicated that FDI regulations are proving a hurdle to expansion - and investment - in the country.

An industry source suggested to just-food that many foreign investors were holding back from making any investment in India until after the country's general election next year, incase of further regulatory changes. The elections are expected to take place before the end of May.

Later this month, just-food will publish a management briefing on investing in India as part of its series on emerging markets.

For just-food's analysis of Wal-Mart's prospects as it prepares to go it alone in India, click here, or for just-food's assessment of Wal-Mart's capex, plans click here.