India will not make any specific concession to help MNC furniture-maker IKEA start its R10,500 crore single-brand retail operation. The investment proposal will go to the Foreign Investment Promotion Board (FIPB), whose recommendations will be incorporated into the final policy guidelines, a department of industrial policy and promotion official said. All proposals involving 100% ownership in single-brand retail require FIPB approval while all investments above R1,200 crore need a clearance from the Cabinet Committee on Economic Affairs as well.
The decision means IKEA must wait at least a couple of months to open its India shop.
IKEA had sought a relaxation in the requirement to source at least 30% from SMEs in India, saying it could adhere to such a norm only over a period of 10 years. The DIPP has now written to IKEA asking why it needs such a long time period. It has also sought clarifications on the linkage between the investor and the brand-holder.
?We are trying to make the policy generic and not IKEA-centric. The final decision will be taken by FIPB once IKEA responds to our letter. The policy will be in line with the way business is done worldwide and not changed case-by-case,? the DIPP official said.
The IKEA investment has become a test case for the government on its ability to attract big-ticket FDI in the retail sector.
The government, which was forced on the back foot by its allies on opening multi-brand retail to foreign investment, however, went ahead and allowed 100% FDI in single brand retail. Following this, Pavers of the UK and IKEA of Sweden sought to invest in India under the new guidelines. While Pavers has sought to expand its India operations by investing around $20 million, IKEA has proposed an investment of Rs 10,500 crore in two stages. However, IKEA is not happy with the clause which stipulates mandatory sourcing of at least 30% of the total value of the products sold from Indian small industries/village and cottage industries, artisans and craftsmen.
The DIPP is also studying the59 approved cases of single-brand retail up to 51% to see the models adopted by these companies as they all had branding problems and how they operated under the existing ambit of concessions.