Political storm over Wal-Mart's 'illegal bid' to influence India

Indian government accused of corruption after supermarket spends $25m lobbying in US

The controversy over the Indian government's plan to allow foreign supermarkets to enter the country took a new twist when it was revealed that the American retail giant Wal-Mart had spent millions of dollars lobbying the US authorities on the issue.

Amid noisy scenes, proceedings in the upper house of India's parliament were brought to a halt by the main opposition party which demanded an investigation into whether or not Wal-Mart's actions had been lawful.

The move by the Bharatiya Janata Party (BJP) followed reports in the Indian media that Wal-Mart had paid $25m (£16m) on lobbying services, including "enhanced market access for investment in India". While it is widespread in the US, lobbying is technically illegal in India, even though it goes on in various unregulated ways.

Last night, a BJP MP and spokesman, Prakash Javadekar, told The Independent that the revelations demanded a full investigation before the government gave the go-ahead for the foreign chains to operate. He claimed the ruling Congress party had a reputation for corruption.

"We don't have official lobbying here and if someone has been paying money that would not be good. It smacks of corruption," he said. "The [coalition] government has come to symbolise corruption because it is synonymous with corruption."

The controversy over whether or not foreign firms should be able to enter India focuses on retail market that is worth an annual £250bn. At the moment, the vast majority of this sector is made up of small shops and markets and the political opposition claims that the arrival of stores such as Tesco, Carrefour and Wal-Mart will lead to the loss of huge numbers of jobs.

Those who support a reform of legislation believe the new investment could help the economy and provide new skills and expertise. The Indian Staffing Federation, an industry body, has suggested foreign direct investment (FDI) could create 10m jobs over the next decade.

The chains themselves have suggested they could revolutionise India's food distribution networks and create a cold-chain system. At the moment, an estimated one-third of vegetables and crops grown by India's farmers rots before reaching the consumer.

The row over the Wal-Mart lobbying of the US government – first revealed in a disclosure report to the US Senate – came a week after a vigorous debate in the two houses of the Indian parliament about FDI and a subsequent vote which the Congress-led government won.

Wal-Mart yesterday dismissed the allegations of illegal lobbying as "entirely false".

"In accordance with US law, US companies are required to disclose the issues and expenditures associated with lobbying on a quarterly basis. The expenditures are a compilation of expenses associated with staff, association dues, consultants, and contributions spent in the United States," the company said. "Our Washington office naturally had discussions with US government officials about a range of trade and investment issues that impact our businesses in the US and worldwide and disclosed this in accordance with the law."

Earlier, the company expressed its readiness to develop wholesale operations it has with an Indian partner.

At the same time Tesco, which is lined up to operate a joint venture with India's Tata group, said: "Tesco welcomes this positive development but we await further detail."