IKEA boost for investor sentiment

Swedish furniture and home accessories major IKEA sought government nod to invest euro 1.5 billion (over Rs 10,500 crore) in a single-brand retail venture in India. In the first phase, it plans to set up 25 stores with an investment of euro 600 million (around Rs 4,200 crore) and then pump in the remaining euro 900 million (around Rs 6,300 crore) in the wholly-owned Indian entity that will also undertake manufacturing work and set up restaurants, cafes, food markets, nursing rooms and publications. 
Commerce and industry minister Anand Sharma, who met IKEA’s global CEO & president M Ohlsson in St Petersburg, said the Swedish furniture major “has reaffirmed its commitment to India and also promised to step up sourcing for its global operations”. The company is planning to double the sourcing for its global operations to around $1 billion (nearly Rs 5,700 crore) by 2016, the minister said. 
IKEA is among a handful of firms that have so far filed applications to set up 100% single-brand retail stores after the government increased the foreign direct investment limit from 51% nearly six months ago. In these stores, companies are permitted to stock goods from one brand which is used globally. The entry also comes with the stipulation that at least 30% of the products have to be sourced from Indian micro, small and medium enterprises, which was a major area of concern for IKEA until recently. In fact, IKEA was expected to be among the first entrants, but the sourcing clause delayed its announcement. The company already works with 70 suppliers and 1,450 sub-suppliers, including many small industries, but still has worries over meeting the mandatory requirement. The commerce & industry ministry is trying hard to dilute the sourcing requirement and mandate that the procurement can be done from any Indian firm, and not necessarily from a small unit, as IKEA still has concerns. Even if the entire clause is not diluted certain modifications would be made to ensure that the foreign retailers stay interested. 
IKEA’s entry is sure to boost investor sentiment at a time when global players are wary of India in the wake of policy flip-flops in recent months. IKEA’s intent to invest comes at a time when the government is facing severe criticism on the grounds that its recent policy moves have hurt sentiments. The government, however, contests that.