FIPB snips Ikeas Indian bouquet

Written by Timsy Jaipuria | New Delhi | Updated: Nov 23 2012, 06:32am hrs
Swedish furniture maker Ikea faces fresh hurdles even after the Foreign Investment Promotion Board (FIPB) cleared its Rs 10,500-crore proposal on Tuesday. The inter-ministerial board has struck down 18 of the 30 items that the global retailer had sought to sell in its stores in India. The development has come as a surprise since the decision to disallow sales of these products was not preceded by any discussions between the company and government officials.

Our stores retail a whole range of products like furniture, office stationery, cosmetics and food items, all falling under the single-brand retail category. If the government strikes down more than half of the items we want to retail without any discussions with us, it surely creates an uncertain situation for the company, an official aware of the development said. All the products for which Ikea had sought approval are manufactured by the company and retailed under its brand name. We are a complete solutions store and curtailing our product list amounts to allowing us to sell a car but not the tyres meant for them, the official said.

Going by FIPBs clearance, Ikea, which has a presence in 38 countries and earns revenues of approximately 27.5 billion euros, cannot retail home and office use products, solutions, fittings, furnishings and accessories including stationery. Also ruled out are textile products including apparel, fabrics, toys, books and gadgets, consumer electronics and accessories, decorative and leather products. Other restricted items include products and accessories for children, safety-related products, cosmetics and lifestyle products. Ikea will also not be allowed to retail its food and beverage products.

When contacted, an Ikea spokesperson said, We are now internally reviewing the details of the latest decision from FIPB and will be able to give you a reply when we are more clear about what it means for us in the coming days.

The development has stumped industry-watchers since the general belief was that Ikeas objections had been addressed with the government dropping the mandatory local 30% sourcing from medium and small enterprises and replacing it with preferably.

It had also done away with the stringent clause saying the value of the plant and machinery in such MSMEs should not be more than $1 million. Ikea, which had sought these changes had subsequently revised its proposal.

For the government, Ikea has almost become a test case since it decided to increase the cap of 51% FDI in single-brand retail to 100%. Although there are several companies that have set up shop in India in the single-brand category since it was allowed in 2006, Ikea had made it clear that it would enter the Indian market only once 100% FDI was allowed. The government recently allowed up to 51% foreign investment in multi-brand retail but state governments need to okay such investments.