Business by other means

Customers outside a Best Price mega store at Zirakpur, Punjab.

THE world’s largest multi-brand retailer Walmart’s disclosure to the United States Senate that it had spent $25 million (Rs.135 crore) since 2008 on its various lobbying activities, which include enhancing access to the Indian market, has divided opinion in India sharply. While chambers of commerce and industry and Congress leaders such as Manish Tewari and Salman Khurshid have sought legalisation for such corporate lobbying through an Act and argued that economic reforms would entail the need for lobbying in power circles, political parties in the opposition and many eminent economists see it as “a benign form of bribery”, and oppose it on the grounds that it is strictly illegal and have demanded a probe on Walmart.

Walmart’s disclosures in early December, on the heels of the approval by Parliament to allow 51 per cent foreign direct investment (FDI) in the multi-brand retail sector, have come as a shot in the arm for the groups that have consistently voiced their reservations about permitting retail giants such as Walmart and Tesco into the Indian market. Their fears over monopolisation and a further decline in the condition of Indian farmers and small retailers triggered a demand from the opposition that the names of the beneficiaries of Walmart’s lobbying be disclosed.

Corporate lobbying in the U.S. is permitted, ostensibly to provide a level playing field to all organisations, big and small, and to prevent crony capitalism as every player will have an equal chance to present its “point of view” in the policymaking processes. The U.S. also has a system of legislative checks through Acts such as the Lobbying Disclosure Act of 1995 and the Foreign Corrupt Practices Act (FCPA), which holds U.S. corporates liable for criminal prosecution if they bribe foreign officials. However, even in the U.S., infamous lobbying episodes have been criticised by industry insiders themselves. A case in point is the 2001 debacle of the energy giant Enron, which observers in the U.S. felt had taken lobbying to arrogant levels in power circles and was virtually having its way in all decisions relating to the energy sector.

In the absence of even a single accountable or facilitative mechanism, corporate lobbying in India is strictly illegal and out of bounds for foreign corporations trying to gain access to the huge Indian market. The uproar in Parliament over Walmart’s disclosures, therefore, has to be seen against the background of a crony capitalist structure of operations, which has characterised the Indian polity ever since the United Progressive Alliance (UPA) government came to power. Corruption scandals relating to the allocation of 2G spectrum and coal blocks are examples of how big business groups have bribed their way into lucrative deals.

For Walmart, the stakes are, of course, very high in India. While declaring its lobbying costs since 2008, Walmart officials said that in the last quarter ended September 2012 alone the company had spent $1.65 million (about Rs.10 crore) on lobbying issues, which included “discussions related to FDI in India”. So far in 2012, Walmart has spent more than Rs.18 crore on lobbying. Walmart has stated that since 2008, the company, barring a few quarters in 2009, has continually lobbied for its entry into India.

According to a report by the global consultancy firm AT Kearney, organised retail in India is expected to reach 25 per cent of the country’s market by 2020. It said that the Indian retail market currently was estimated to be worth about $500 billion and could, considering the growing purchasing power, cross $1 trillion by 2020.

Indirect entry Walmart already faces a critical allegation that it invested in the Indian retail market through indirect routes even when FDI in retail was not permitted. It must be noted that Walmart has been in the wholesale business in India since 2007. This was facilitated by the UPA-I government’s decision in 2006 to allow 100 per cent FDI under the automatic route for “wholesale cash and carry trading”. This meant that the approval of the Foreign Investment Promotion Board (FIPB) under the Ministry of Finance to allow FDI in wholesale trading was no longer necessary. Walmart entered the Indian wholesale market in 2007 after it signed a 50:50 joint-venture agreement with the Bharti group and formed Bharti Walmart Private Ltd. The centres—Best Price Modern Wholesale—have been in operation since 2009 and are spread all over India (The Bharti group owns India’s biggest telecom operating company, Bharti Airtel.)

In early September, Communist Party of India Rajya Sabha member M.P. Achuthan, in his Parliament question to Union Commerce and Industry Minister Anand Sharma, pointed out that Walmart had already entered the Indian retail market and had violated Indian laws as FDI in retail was not allowed at that point of time. He alleged that Walmart indirectly entered the Indian retail sector as early as 2010 by investing in a company called Cedar Support Services Ltd of the Bharti group.

In 2007, the year Walmart signed a joint venture agreement with Bharti for wholesale business, the Bharti group formed Bharti Retail Holdings Ltd, which owned a subsidiary called Bharti Retail Ltd that operated supermarkets called Easy Day. According to the documents of the Registrar of Companies, Bharti Retail Holdings changed the “objective clause” or business description of the company from retail to consultancy services, in which FDI investments can be made through the automatic route. The change in the clause came in December 2009 and a month later, the name of the company was changed to Cedar Support Services Ltd.

Around four months after this, Cedar and Walmart signed a joint venture agreement on March 25, 2010 (Annexure 2, Director’s Report of Cedar). As a holding company, Bharti Retail could not have received FDI without FIPB approval. Walmart invested $100 million (approximately Rs.450 crore) in Cedar, which at that time had no consultancy employees and showed only $14,000 (Rs.7,80,000) as revenue. “How can a company as big as Walmart invest in such a small company?” asked Achuthan. This was a step, many lawyers say, taken only to facilitate Walmart’s investment and to create a facade to enable Cedar to receive FDI under the automatic route, which is allowed by Foreign Exchange Management Act (FEMA) regulations. However, this investment can also be seen as circumventing FDI prohibition in multi-brand retail.

Achuthan said that the $100 million Cedar received had been issued as “compulsorily convertible debentures (CCDs)” to Walmart Mauritius Holdings Company Ltd, which would be exchanged for 49 per cent equity 18 months after the issue date, according to Registrar of Companies documents. However, the date of conversion has been pushed further twice and will, perhaps, be exchanged only after the relaxation of FDI rules through amendments to FEMA, which has already been approved in Parliament. The reports furnished by Cedar in 2010 show that the funds raised from the debentures were used to finance its business operations and its balance sheet shows a transfer of Rs.175 crore to its retail unit (Bharti Retail), pointing towards Walmart’s illegal entry into the retail business. “The audited accounts of Bharti Retail show that its revenue jumped from Rs.133 crore in March 2009 to Rs.1,021 crore in December 2011. The number of Easy Day stores rose from 43 in 2009 to 173 in December 2011. How is such a steep rise possible without diverting Walmart’s money into its retail stores? It is often overlooked that Bharti Retail was a subsidiary of Bharti Retail Holdings Ltd, [and] it remained so even after its name was changed to Cedar. Walmart has to be held accountable as it cannot get into an agreement with Cedar without knowing that Bharti Retail Ltd is its subsidiary, despite the change in ‘objective clause’ of the company,” Achuthan told Frontline .

Multilevel probe He added that CCDs were treated as equity under FEMA and that they were covered under the definition of “Capital”, and therefore, CCD investment was nothing but FDI. Bharti, in turn, has responded that its activities remained within the legal limits and that the company did not violate any FEMA rules. “We are in complete compliance of all regulations. All details have been shared with the relevant authorities,” it said. But a senior government official told Frontline that the matter had been reported to the Enforcement Directorate, the country’s financial watchdog, and the Reserve Bank of India (RBI) had recommended a probe. In the lobbying scandal, too, the government has ordered a judicial probe.

Praveen Khandelwal, secretary-general of the Confederation of All India Traders (CAIT), which has been the most vociferous opponent of FDI in the retail sector, told Frontline : “We wanted a probe by [the] Public Accounts Committee but since the government has already ordered a judicial probe, we want the probe to furnish the names of all the beneficiaries and an expansion in the committee’s powers so that it could probe the lobbying activities of not just Walmart but all the global retailers who are interested in the Indian market. Lobbying has to be condemned in the strongest possible terms as it is nothing but a dignified word for corruption.”

Walmart officials, while maintaining that the company was not aware of the change in the “objective clause” and nomenclature of Cedar, have said that Walmart did not violate any regulations. It has also suspended some of its top officials.

Suspending top officials had been one of the first actions of Walmart in such cases all over the world, Achuthan said. “Such actions only victimise the employees. How could Walmart not take accountability on this issue? It attempts to show that Walmart is above corruption. But the larger question is about the monitoring mechanisms that the government and the RBI have to track the end-use of FDI. I have written to both the RBI and the Prime Minister to know about it. There has to be some kind of accountability for corporations and the government should know whether the money is being invested in the stated purpose or not. If there is none, it definitely points towards a larger connivance of the political leadership and corporations,” Achuthan said. Union Minister for Commerce and Industry, Anand Sharma, stated in Parliament that “the Reserve Bank of India has reported that its database does not have any record of FDI in Cedar Support Services Ltd”.

On the defensive Following the lobbying-related revelations, Walmart has been on the defensive. It suspended several of its top officials over allegations of bribing government officials and claimed that it was pursuing an internal investigation into whether its local joint venture violated U.S. anti-corruption laws. It further said that its Indian joint venture with Bharti Enterprises had suspended “a few associates”, but declined to give any details about those under scrutiny. It is interesting to note that India is not the only country where Walmart faces allegations of bribery. In Mexico, too, it is facing charges of bribing government officials to the tune of around $24 million. According to a news report in The Times , Walmart chief executive officer Mike Duke and former CEO Lee Scott were among the senior executives allegedly aware of the situation. Walmart is conducting similar probes into charges of bribery in China and Brazil. All the allegations were in regard to securing permissions to open new stores and developing the company’s infrastructure in these countries.

However, many international observers feel that the internal probes of Walmart and the suspension of officials are intended mainly to secure concessions from the U.S. government, which could book the company under the FCPA. And such a facade has earned the company in the past decade many concessions and quid pro quo deals.

Lobby power Lobbying as a practice in the U.S. has led to the formation of several professional lobbying firms and the individuals engaged in it are popular, with the term “lobbyists” denoting their influence among high-profile individuals. It is for this reason that the firms are hired by not just companies but also several governments to push their “point of view” in policymaking. For example, Patton Boggs, one of the lobbying firms which represented Walmart, was also hired by the Indian embassy in the U.S. in 2008 to help clinch the India-U.S. nuclear deal. But in the absence of transparent conduct, such lobbying has been a frequent source of ruse, as in the case of Walmart’s lobbying in India. “There is a very thin line between advocacy and lobbying. While advocacy is done in the public domain, is transparent, and is mostly done to gather public support, lobbying is opaque and discreet. One does not know how lobbying affects individual lives. In a country like India, it can be disastrous,” said Subrat Das, executive director of the Centre for Budget and Governance Accountability (CBGA), a New-Delhi based think tank .

It is not the first time, however, that India is experiencing lobbying. The now bankrupt Enron, which had landed the Dabhol power project, discreetly diverted its lobbying costs towards “education costs”. That was the first time India realised the immense power of lobbying. Enron landed the project in 1993 when the Congress was in power in Maharashtra. The biggest opponent of the project was the Shiv Sena, then the chief opposition party. However, when the Sena formed the government in 1995, Enron, through its smooth lobbying, managed to cajole the party to such an extent that it became one of the biggest advocates of the project.

Enron had done its homework. In 1994, it got the Washington-based Export-Import Bank to approve a $302-million loan towards a $3-billion Enron-controlled power plant in India. It persuaded the then President, Bill Clinton, to take a special interest in the deal. Clinton asked U.S. Ambassador to India, Frank Wisner, and former chief of staff, Thomas F. McLarty, to monitor the proposal. McCarty later became a paid Enron director for his services to the company in India. In 1996, Clinton, too, received a contribution of $100,000 for the Democratic Party. Enron declared that it spent $20 million (Rs.110 crore) in India in “educating” Indians about the project, clearly an euphemism for bribing government officials.

Back in the 1990s, Deepak Talwar’s DTA Associates, a lobbying firm, was credited with swinging spectacular deals for Coca-Cola, which had been banned in India. More recently, the lobbying firm Vaishnavi, owned by Nira Radia, as was exposed in her tapes, pointed towards a larger nexus between the political class and big capital.

Praful Bidwai, the environmentalist and political commentator, said in a recent article: “Corporate lobbyists have become important mediators—and sometimes active players—in business-government relations in a number of areas, including the infrastructure (highways, ports and huge projects under the Jawaharlal Nehru National Urban Renewal Mission in 63 cities), energy (including gas, oil and energy), telecom (where the 3G auction bids show that the earlier 2G spectrum were sold at a fraction of the market price), and mining (where global conglomerates have developed stakes running into billions of dollars in India’s tribal heartland). Not to be ignored is the clout that lobbyists wield in military contracts, agribusiness, seeds, civil aviation, and opening up retail trade to organised business, including multinational hypermarket chains like Metro, Carrefour and Walmart. Corporate lobbying has become the highest embodiment of crony capitalism in India.”

In fact, lobbying in India is big business, with at least 30 major firms based in New Delhi alone, according to Bidwai. Each of them relies on its proximity to bureaucrats and Ministers. “Unlike advertising agencies, which offer certain services to whoever is willing to pay, lobbying companies are intimately allied in what may be called political ways with specific business groups.... Common to them are all the slick techniques and skills that successful, if unscrupulous, lobbying requires, including ability to cherry-pick facts that suit/favour the client; make attractive PowerPoint presentations that suggest familiarity with the subject, if not mastery of it; determination not to be fazed by hostile interactions; knowledge of which keywords to use and which buttons to press,” wrote Bidwai.

Some recent reports reveal that it is not just Walmart but 15 other American companies have spent crores of rupees on lobbying in India, which they have declared in their annual reports. Prominent among these are the drug giant Pfizer, computer-makers Dell and HP, financial services majors Morgan Stanley and Prudential Financial, the global coffee chain Starbucks, the telecom giant AT&T, and the aircraft production company Boeing.

The Walmart lobbying scandal points towards the growing economic influence of American corporations in Indian policymaking in the last two decades. The government’s willingness to allow FDI in critical industrial sectors is only helping the cause of these corporations. The government’s justification in the case of FDI in retail as benefiting Indian farmers, retailers, and consumers seems to fall flat in this context. Such lobbying, which has the potential to alter policy decisions, can only be backed by large forces of capital and not by small players. Walmart, for example, is the biggest retailer in the world. It operates in 69 different banners in 27 countries. From a meagre $30,000 in 1962, Walmart’s revenue rose to $15.8 billion in 2012. Its power has risen not only in numbers but, as can be figured out from its lobbying disclosures, in many areas of domestic and international concern. In the 80 issues it has disclosed in its lobbying disclosure reports of the last quarter, trade (domestic/foreign), food industry, taxation, financial institutions, health issues, labour issues, pharmacy, transportation, immigration, consumer issues, safety, products, energy and nuclear issues, and homeland security figure prominently.

Given the high stakes in India, Walmart’s desperation to enter its market is understandable. Walmart and the genetically modified food producer Monsanto are already on the board of the Indo-U.S. Knowledge Initiative on Agriculture Research and Education, which was set up in 2006 ostensibly for collaborative farm research with Indian laboratories and agricultural universities. For companies as huge as Walmart, it is as important to remain in policy bodies as it is to sell their products, as both these are business aspects and not mutually exclusive. Both are entrenched within the notions of monopolisation, crony capitalism, and creating business “empires”. Therefore, it becomes all the more important that such lobbying in a developing country like India should not be allowed to continue as it could be seen as an infringement of the country’s sovereignty. Rather than looking for a new law to accommodate lobbying, it should be identified as a corporate malpractice and companies indulging in it should be made liable for severe punishments.