Decks are set to be cleared for India’s largest foreign direct investment (FDI) in the retail sector, with the foreign investment promotion board (FIPB) on Tuesday approving Swedish furniture-maker Ikea’s proposal to invest R10,500 crore in single-brand retail in two phases.
“The FIPB has approved the proposal of Ikea,” economic affairs secretary Arvind Mayaram said after the board meeting.
Ikea’s proposal — it intends to invest R4,200 crore in the first phase — will come handy for the government in Parliament as it braces to counter criticism over its recent decisions to attract more FDI into the retail sector. While a political consensus on FDI in retail still seems elusive, the government has been stoutly defending its decision, saying this would benefit farmers and consumers, besides creating several thousands of new jobs.
India raised the FDI limit in single-brand retail to 100% in January 2012 and allowed 51% FDI in multi-brand retail in September. The Swedish company’s investment will be routed through its wholly-owned subsidiary Ingka Holding Overseas BV. The company will set up 25 retail stores in India, in two phases.
Although the FIPB okayed the proposal, the Cabinet Committee on Economic Affairs (CCEA) must still vet it, as under the FDI policy, FIPB can clear investment applications only up to Rs 1,200 crore.
Last month, the Swedish retailer had submitted a fresh application to open stores in India after the government tweaked sourcing norms for FDI exceeding 51% in single-brand retail and diluted the previous condition of mandatory sourcing of 30% of inputs from micro, small and medium enterprises (MSMEs) in the country and said the sourcing should be done “preferably” from MSMEs.
The DIPP had earlier said that it was studying the 59 approved cases of single brand retail to see the models adopted by these companies as they all had branding problems and how they operated in the existing ambit of concessions. The last FIPB meeting had cleared three single-brand FDI proposals. They were of British footwear retailer Pavers England to open fully-owned stores, a 51% joint venture of American luxury clothing retailer Brooks Brothers and Italian jewellery maker Damiani’s plan to form a venture with Mehta’s Pvt Ltd.