Walmart bribery episode: Another wake-up call for India

Notwithstanding Walmart’s tainted history of kickback allegations, the recent revelations concerning the retail giant’s India operations have reinforced the need to build a culture of transparency and accountability to live up to our much-chewed promise of ‘ease of doing business’.

“I have always been driven to buck the system, to innovate, to take things beyond where they've been” - Sam Walton

There seems an ironic and eerie coincidence between the words of Sam Walton, founder of America's multi-billion retail chain Walmart, and the recent Wall Street Journal (WSJ) report alleging that the company paid bribes to Indian officials to "buck the system", which helped them in easier movement of goods through customs. In what is a far cry from the ethical business practices boasted by Walmart, WSJ reported that bribes were paid to low-level officials in India. “The vast majority of the suspicious payments were less than $200, and some were as low as $5, the people said, but when added together they totaled millions of dollars,” the WSJ stated.

The bribery allegations, even if proven true, might not attract any penalties for Walmart, as profits from Indian operations don’t fall under the aegis of Foreign Corrupt Practices Act (FCPA) of the United States. FCPA penalties, reportedly, are connected to the amount of profit from the alleged misconduct and Wal-Mart's Indian operations have not been profitable.

Walmart’s tainted history

When Krish Iyer, CEO of Walmart India, took charge of Indian operations in 2014; the company was undergoing a breakup. To increase its global foothold by venturing into the unchartered waters of India, as early as 2007, the retail giant found a partner in Bharti Enterprises. The joint venture was to build and operate cash and carry superstores in India under the name Best Price Modern Wholesale.A change of strategy, primarily by Walmart, played spoiler of sorts for the JV. Walmart wanted to adhere to the ‘cash-and-carry’ business, and had built up the entire backend for it including supply chain infrastructure, supplier development programmes, and procurement hotspots. However this was in violation of the law of the land. The Indian Government required retailers to source 30 percent from small suppliers which made operating conditions tough for Walmart to comply with.

The company was also embroiled in a controversy over flouting norms in some other countries like Mexico, Brazil and China, where it allegedly tried to bribe officials. As per a report in New York Times, Walmart had allegedly paid bribes to the tune of $24 million in Mexico to build stores there. Middlemen gained out of such deals, and facilitated the process of getting permits. This did not go well with Bharti Enterprises, as it decided to jettison the partnership, which when it had been announced, had all the makings of a “Retail liberalization” in India.

It seems though that Walmart has never been shy of bending the rules to get things in their favour. In order to establish supremacy in the retail world vis-à-vis competition, the American giant is resorting to all means, whether paying bribes, giving “donations” and altering legal documents to circumvent the transparent procedures, open debates and democratic voting. In that sense, it has been a serial deceiver.

The larger issue

Paying a bribe is not much of a rarity in India but the Walmart revelations of indulging in unfair practices have underlined the murky nature of the business dealings in India. While the exact amount of the bribes paid is still under estimation and it will take some time for the investigation to reveal the exact figure, it is imperative that we ask ourselves some fundamental, uncomfortable questions: Why did Walmart have to pay the bribe? Do we lack a transparent process in terms of obtaining clearances and licenses in matters like land, environment or customs, which force such foreign-based companies to resort to unfair means? Is the unease of doing business in India hurting our foreign investments, as more FIIs/FPIs pull money from the markets every day?

Of course, despite India’s exclusive problems, the onus is also on MNCs to stick to the basics of morality. Will they and can they afford to uphold their conscience is another question? But running the risk of a sympathetic view on the Walmart story despite incriminating evidence of bribes and flouting of norms, we need to raise even more fundamental questions on the ease of doing business in India.

Traditionally, India has never been an easy place to start and sustain a business. With the plethora of rules, age-old norms, dozens of clearances, permits, not-so-transparent taxation structure and to top it all, a sluggish bureaucracy that is grossly underpaid, the honest businessmen have to go through a lot of hurdles before they can create a successful enterprise, especially for the foreign players.

A survey by the Indo-German Chamber of Commerce (IGCC) on hindrances of doing business in India in 2015 lists bureaucracy (58 percent), lack of infrastructure (52 percent) and corruption (45 percent) as the main obstacles for companies, followed by tax disputes (32 percent) and lack of skilled people (35 percent). For foreign investors like Walmart and others, sectoral conditions like minimum capitalization and shareholding restrictions to gain parity with the domestic peers play spoil sport when the try to up investment in India.

A recent report by World Economic Forum on the global competitiveness ranking slots India at 55th position out of 140 countries. A jump of 16 places from the last year offers little respite considering the alarming situation in the category of “ease of doing business” where India ranks 142nd among 189 nations. “India’s performance in the macroeconomic stability pillar has improved, although the situation remains worrisome (91st, up 10). Thanks to lower commodity prices, inflation eased to 6% in 2014, down from near double-digit levels the previous year. The government budget deficit has gradually dropped since its 2008 peak, although it still amounted to 7% of GDP (gross domestic product) in 2014, one of the world’s highest (131st). Infrastructure has improved (81st, up six) but remains a major growth bottleneck—electricity in particular,” the report observes. Although the Modi government is trying hard to come up with solutions, it would take considerable time to get transparent and accountable systems firmly in place.

Systematic failures of successive governments to provide a clear, transparent and favorable atmosphere for business development has indirectly forced many multi-million dollar corporations to bend the rules of the state to push their growth agendas. The Walmart story is a classic case in point. As India is trying to leapfrog into the band of developed economies of the world, there is an urgent need to address these grave concerns. Otherwise, ease of doing business will forever remain an uneasy target.