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India clears Walmart of FDI violations


India has cleared US supermarket giant Walmart of accusations it broke a ban on foreign investment in supermarkets by taking an indirect stake in a local chain, reports said Thursday.

The Indian government has been investigating a purchase by Walmart of $100 million in convertible debt from the retail arm of Indian conglomerate Bharti Enterprises to see whether the US supermarket chain was seeking to circumvent curbs on foreign investment in the sector.

Walmart's purchase of debentures had sparked accusations it was trying to get round foreign direct investment (FDI) rules as the debt could be converted into an equity stake in violation of regulations in force at that time.

But the Enforcement Directorate, a federal investigation agency, said it had found no violation of FDI guidelines by the multinational retailer under new rules, the Press Trust of India (PTI) news agency reported.

"The Enforcement Directorate has found no contravention of foreign exchange laws as the government has recently amended the Foreign Exchange Management Act (FEMA) and the guidelines regulating FDI in the multi-brand retail sector," a senior unnamed official told PTI.

"There is no concrete basis for the agency to take forward the probe, unless otherwise there are some new directions," the official was quoted as saying.

The Wall Street Journal also carried a similar report on its website, citing an unnamed official familiar with the probe as saying there appeared to be no violation.

India last year allowed foreign supermarkets to operate in the country as part of a move to open up the economy to FDI.

The probe was ordered after a communist lawmaker wrote to Prime Minister Manmohan Singh complaining about Walmart's 2010 purchase of the convertible debentures in Cedar Support Services, the holding company through which Bharti controls Easyday, a multi-brand retail chain.

Walmart has long insisted the purchase did not break the rules and that it was discussed with government officials when the transaction took place.

A spokesman for the store declined to comment Thursday, saying the Enforcement Directorate had not yet officially released its findings.

The latest development comes just a week after Walmart and Bharti announced they were ending their retail partnership.

The companies said they would "independently own and operate separate business formats", ending an alliance aimed at building Walmart's presence in India's potentially lucrative retail sector.

The world's biggest retailer has operated since 2007 in India as a wholesaler via its partnership with Bharti.

Walmart had partly blamed India's foreign investment rules for the break-up.

Walmart had said in July it was unable to meet the government's requirements stipulating that 30 percent of its products must come from local small-scale industries for it to open retail stores.

Under the break-up, Walmart will acquire Bharti's stake in the wholesale business.

Walmart is expected to stay focused on its wholesale business, which would help to build up its supply chain to support any future store venture.