Speculation is rife that Walmart plans to exit its wholesale joint venture with India-based Bharti group, and that it is considering a front-end retail launch in the country.

Walmart is making a loss in India but the emerging market has potential

However, a bigger decision for Walmart is whether to call time completely on India, or hold out to exploit the potential on offer.

Since its inception in 2010, Walmart’s Indian operation has been mired in turmoil. In addition to the Foreign Direct Investment (FDI) probe - the initial investment violated FDI rules and Reserve Bank of India’s guidelines - its head of Indian operations recently left.

However, Walmart is likely to remain committed to India, even though it is unprofitable. Bharti Walmart posted a 34% widening of losses for the year ended December 31, 2012, despite revenues increasing 80%.

While disappointing, it can take up to 10 years for foreign retailers in emerging markets to break even, so it is perhaps too soon to pass judgment.

Commentary on India in Walmart’s second-quarter results was conspicuous by its absence, and the situation is becoming increasingly paradoxical. Just when the Indian government further clarifies FDI policy in multi-brand retail, Walmart’s operation enters a heightened state of flux. In order to comply with the requirement of a minimum 30% sourcing from small vendors, Walmart can now source goods from enterprises with investment levels of $2m (£1.3m) instead of the earlier limit of $1m (£627,200).

This is unlikely to meet Walmart’s demand to dilute the local sourcing requirement from 30% to 20% and, should it discover these conditions can’t be met, enthusiasm for India might fade.

Walmart’s final decision will have a crucial bearing on Bharti’s prospects. It has been closely involved in running Bharti Retail’s Easy Day stores and was expected to acquire an equity stake. Should Walmart exit the joint venture, Bharti will be left in a quandary.

Legislative and regulatory challenges may mean Walmart’s plans for a front-end operation are dead in the water, but prospects in the cash and carry sector are good.

With no structured wholesale networks, India holds great potential for Bharti Walmart’s Best Price Modern Wholesale cash and carry stores.

Walmart is not the sort to pass up the potential of India and, with the country’s best days ahead of it, the retailer is unlikely to call time on operating there just yet.

  • Miloš Ryba, research director emerging markets, Planet Retail.

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