Wal-Mart Stores (WMT) Tells Indian Officials It Cannot Meet 30% Sourcing Requirement From Small Indian Enterprises

Wal-Mart Stores Inc. (NYSE:WMT) has been aiming to plant its multibrand retail flags in India, but the world’s largest retailer has faced considerable backlash despite a move last year by New Delhi to allow states to decide for themselves whether to permit foreign direct investment in retail.

The latest problem: Wal-Mart says it's incapable of sourcing 30 percent of its goods from small Indian suppliers, one of a number of requirements for multinationals to set up shop under majority-controlled joint ventures in one of the world’s largest economies.

Wal-Mart has said it wants to open its own retail outlets in India by the end of next year, but it has faced considerable blowback by opponents who argue India’s traditional economy of family-owned microbusinesses would be wiped out by multinational grocery stores and multibrand retailers.

In a meeting earlier this month, company representatives told officials from India’s Department of Industrial Policy and Promotion that Wal-Mart has only been able to establish local small-enterprise sources for 20 percent of the total value of the goods it wants to sell in India.

"We continue to work with the government to better understand the rules that exist for FDI and we appreciate the government’s willingness to consider our requests for clarity on conditions contained in the new FDI policy,” a local representative for the Bentonville, Ark.-based retailer told India Today in a report published on Tuesday.

Wal-Mart operates wholesale cash-and-carry outlets to supply retailers and restaurants in partnership with New Delhi-based Bharti Enterprises, but until last year had been prohibited from opening its own Wal-Mart brand general retail outlets.

In May, Wal-Mart replaced Raj Jain, the head of the company’s India operations since 2007, following allegations last year the company paid bribes to further its agenda to move beyond its current wholesale business in India. The company didn't provide a reason for replacing Jain with Ramnik Narsey, senior vice president for Wal-Mart International, as interim director of the company’s Indian operations.

Since last year, New Delhi has allowed states to decide whether or not to permit retail FDI in cities with populations greater than 100,000. So far, five states have passed measures allowing foreign multibrand retail. At least 13 Indian cities are large enough to qualify, most of them located in the states of Maharashtra (where Mumbai is located), Andar Pradesh in the southeast and Rajasthan in the northwest.