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Corporate Dec 4, 2012

Wal-Mart in India, GMR in Maldives: A study in contrast?

By Rajesh Pandathil

It is significant that GMR's Maldives airport controversy is happening at a time when Wal-Mart's business dealings in India is under severe scrutiny.

The coincidence offers an opportunity to look at both the deals as a study in contrast.

Wal-Mart based in the US has launched a corruption probe in India and the company has suspended five executives pending investigation.

Bharti Wal-Mart, the retail giant's joint venture with Bharti Enterprises in India, has not yet disclosed the full details of the probe or even the staff likely involved, a report in the Business Standard said.

It is also high time, the government put in place a law to govern Indian companies conduct of business outside the country, especially since globalisation of domestic companies is on an increase.

The probe happens even as there have been allegations that the company's investment in the retail venture of the Bharti group violated Foreign Exchange Management Act.

The Enforcement Directorate is probing this aspect.

It is not clear whether the probes launched by the company and ED are related at all.

However, the truth is that the company is also investigating a likely corruption.

In GMR's case too, there have been allegations of money changing hands in Maldives, according to a report in Outlook.

The complaint filed by the Maldives Airports Company to the Maldives Police Service seeks to investigate "the unlawful leasing of Male International Airport on June 28, 2010 by the senior officials of the former government and former board members of the Company".

In addition, a Business Standard report yesterday said that the Indian company had actually got a bonanza from the erstwhile Maldivian government.

The then government led by Mohammed Nasheed, allowed the company to set off a fall in its revenue owing to non-collection of airport development charges (ADC) with a reduction in the annual concession fee that was payable to the government over the next 25 years, the report said.

A local court had struck down a condition in GMR's contract that allowed it to levy an ADC of $25 and insurance of $2 on all departing international passengers.

This is the issue at the centre of the controversy. According to a report in the Business Standard today, Maldives Airport Company Ltd will conduct a forensic audit of the GMR Male International Airport's books.

The Maldivian government has said that it has received only $78 million as annual concession fee, while the company claims to have already paid $111 million. The actual amount payable has been put at $105 million.

As the controversy rages and takes diplomatic proportions, there is a question that begs to find an answer for - would it not be better for GMR also to introspect on its own business practices, just like Wal-Mart is doing?

First and foremost, this is not to say that Wal-Mart is a saintly organisation and also not intended to suggest that GMR has done something wrong. Let us take its denials at face value.

An introspective probe will only help it emerge with clean image, especially since it has been dogged by a controversy back home after Comptroller and Auditor General's report on Delhi airport.

In GMR's case, the key difference with Wal-Mart will be that if the Indian company offers to probe itself, it will be at best an introspective one.

One reason for this is that unlike in the US, there are no laws here to enforce an investigation.

By probing the India unit, Wal-Mart's aim is to find out whether there has been a violation of the Foreign Corrupt Practices Act (FCPA) of 1977. This law makes it illegal for US companies to pay kickbacks anywhere in the world.

According to the BS report, Wal-Mart says "it has spent more than $35 million on its global FCPA compliance review efforts over the past 18 months".

This is in striking contrast to Indian situation, where the Indian law to curb corporate corruption even inside the country is next to non-existent.

So if GMR shows an intention to probe itself, it will only help improve its image.

It is also high time, the government put in place a law to govern Indian companies conduct of business outside the country, especially since globalisation of domestic companies is on an increase.

After all, corruption is corruption, whether in Big Brother US, Middle Brother India or Small Brother Maldives.

by Rajesh Pandathil

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