Walmart-Flipkart deal: RBI, ED to look into alleged FDI rule violation

The commerce ministry has asked the Reserve Bank of India (RBI) and the Enforcement Directorate to look into the alleged violation of FDI rules in the $16-billion Walmart-Flipkart deal.

The Department of Industrial Policy and Promotion (DIPP) under the ministry of commerce and industry has forwarded a complaint filed by Swadeshi Jagran Manch (SJM) to RBI and the investigative wing of the revenue department for further action.
Swadeshi Jagran Manch (SJM), an organisation that stands for 'economic  nationalism’ has strong reservations about the by US retail giant Walmart Inc acquiring the Indian e-commerce major, which it says is illegal.
The SJM had raised its objections earlier this month for giving backdoor entry to Walmart into the Indian retail market.
The commerce ministry says that while it is entrusted with the formulation of FDI policy across sectors, including e-commerce, it is RBI and the finance ministry that deals with Foreign Exchange Management Act (FEMA).
DIPP, in an office memorandum said the FDI policy as contained in ‘Consolidated FDI Policy Circular 2017’ is notified under FEMA law.
Any FDI violation is governed by penal provision in the Foreign Exchange Management Act (FEMA) 1999. While the RBI administers the FEMA, the Enforcement Directorate is responsible for enforcement of FEMA. So violation of FDI policy is therefore the subject matter of RBI/Enforcement Directorate, the DIPP said.
“Reserve Bank of India administers the FEMA and Enforcement Directorate under the Ministry of Finance is the authority for the enforcement of FEMA. Violation of FDI policy is, therefore, the subject matter of RBI/Enforcement Directorate,” the DIPP said in a letter written to the agencies on 28 May.
The DIPP has therefore “requested” the RBI/ED to examine the matter (SJM’s complaint) and advise on appropriate action to be taken.
In a letter dated 24 May, Swadeshi Jagran Manch, which has been critical of the FDI, asked the department to immediately “initiate an enquiry” into the “dubious deal” between Flipkart owners and Walmart — which has been written outside, but for all tangible and intangible assets placed in India.
It also wanted DIPP to make “strong representation” before the Competition Commission of India so as not to approve the takeover deal before the results of enquiries being initiated by DIPP are available.
SJM also sought a DIPP enquiry into the nexus between Flipkart companies and the ‘so called’ independent B2C companies and how they were allowed to carry on activities without any objections from regulators, including the DIPP, in the past.
Walmart recently acquired 77-per cent stake in the Singapore-registerd Indian e-commerce company Flipkart, which is the leading e-commerce company in India. SJM alleges that the deal violates FDI norms as the acquisition is a means of backdoor entry for Walmart into the Indian multi-brand retail trade.
Current FDI norms does not allow foreign direct investment in multi-brand retail business in India. This is meant to protect small traders and manufacturers and also consumers from predatory pricing.
According to SJM, the Flipkart Group is covertly operating in both B2B and B2C segments through a complex corporate structure and is already illegally carrying on multi-brand retail trade through e-commerce by flouting RBI’s directions on FDI.