Swedish furniture maker Ikea will be allowed to do business in India exactly on the lines of its global model, commerce and industry minister Anand Sharma confirmed on Wednesday. This will include selling products other than furniture like running cafes, as it does in other countries.
The Ikea business plan is the showpiece proposal for the Indian government as part of its throwing open of investment into the retail sector for foreign and domestic entrepreneurs.
Sharma was confident the government would soon clear Ikea’s proposal, saying it had been held up because in the original proposal, the global retailer had not explained how its global business model worked. Ikea, which reported revenues of 26 billion euros in 2011 and has 338 stores, plans to invest Rs 10,500 crore in India rolling out 25 stores.
Speaking at the Idea Exchange programme of The Indian Express, the minister said: “Ikea’s proposal based on its global model, which includes cafeterias, will be approved. The company simply needs to clarify what its global model is because we had sought a clarification on why it was not there in their earlier proposal,” Sharma explained.
The minister observed that although Ikea’s proposal was not on the agenda of the Foreign Investment Promotion Board’s (FIPB) next meeting on January 21 (earlier scheduled for January 18), it may be brought in as an additional item. He also said other investors like Tesco and Carrefour were also keen to tap the Indian market.
“I have moved the file and the proposal goes to FIPB now and it should go through. They (Ikea) were right that their global range should be accepted,” Sharma added. The minister’s clarification means Ikea can retail a host of single-brand retail products like cosmetics, apparel and office products, as also run cafeterias.
Ikea had sought a review of the decision that was taken by the FIPB in November wherein while approving its first tranche of investment worth Rs 4,200 crore, the board had struck off 18 product categories of the 30 proposed and refused permission to the company for opening signature cafes and restaurants in the stores. The board said Ikea could not sell items such as home and office-use products, textiles, apparel and fabric, electronic items, leather products, toys, books and lifestyle and travel-related items.
Ikea then approached the industry department, which forwarded the request to the FIPB seeking a review of its November 20, 2012, decision.
Subsequently, the FIPB deliberated on the representation at its meeting on December 31, 2012 and sought clarifications from the company. Once the FIPB clears the company’s proposal, it will go to the Cabinet Committee on Economic Affairs (CCEA) as is the norm for all foreign investment proposals exceeding Rs 1,200 crore.
The government in September 2012, relaxed a provision requiring single brand retailers to source at least 30 per cent of their requirements from small and medium enterprises, modifying rules to say it was “preferable” rather than “mandatory”. Ikea will operate in India through its wholly-owned subsidiary Ingka Holding Overseas BV and the investment of Rs 10,500 crore will be the largest by a single-brand retailer in India.