Ikea: Gets red tape in place of a red carpet

Sep 22 2013, 14:56 IST
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SummaryWhy is India struggling to attract global players?

Why is India struggling to attract global players? If one were to go by one of the largest foreign direct investment proposals in the retail sector in recent times, red tape is apparently playing spoilsport. At least Swedish furniture maker Ikea would want us to believe that after it had to wait nearly a year before it got the final clearance for its R10,500-crore investment proposal by the Union Cabinet.

The retailer had initially put in an application in June last year seeking to invest R4,200 crore in the first tranche to set up 10 stores and a further R6,200 crore to open 15 more. The investment will be the largest by a global company since India allowed single-brand foreign retailers to set up wholly-owned stores where a company would only sell items of its own brand.

But soon afterwards, Ikea’s proposal faced hurdles in its march towards the finishing line, as it was concerned by the prevailing norms at the time, which stipulated that in any investment where it owns more than 51% stake in the Indian entity, a single-brand foreign retailer would be required to “mandatorily” source 30% of its goods from the country’s small and medium enterprises.

That requirement was, however, relaxed by the Union Cabinet in September 2012 and, barely a month later, the investment proposal was cleared by the Foreign Investment Promotion Board (FIPB).

However, there was more drama left. The November 2012 approval from the FIPB for Ikea was only for furniture products. The Swedish retailer wanted to bring its global business model to India, in which its stores would have a cafe and it would sell textile and office furnishings in addition to home furniture.

Ikea ultimately had to reapply to the FIPB, and its application was cleared in January this year. The proposal had to wait five more months before the Union Cabinet finally cleared it in May. Today, Ikea is in the process of identifying locations to open its first stores in the country.

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