23.11.12

IKEA


IKEA, the world’s largest furniture retailer, is poised to become the first major foreign company to open wholly owned stores in India after it received a crucial government clearance to invest Rs.10,500 crore ($1.9 billion).
The Swedish company’s investment proposal, the biggest so far by a foreign retailer, was cleared by the Foreign Investment Promotion Board and will have to be approved by the Cabinet Committee on Economic Affairs. All foreign investment proposals over Rs.1,200 crore have to be approved by the Cabinet panel, but this clearance is expected to be a formality since the government is keen to project a foreign investment-friendly image.
IKEA, which operates 336 stores in 44 countries, plans to invest $778 million to set up 10 furnishing and home-ware stores as well as allied infrastructure over 10 years. It subsequently plans to invest $1.7 billion to open 15 more stores. The company has said it will take three years to build a supply chain to roll out its first outlet in the country. It becomes the third foreign company after apparel maker Brooks Brothers and Pavers England, the UK-based shoemaker, to obtain FIPB approval under the foreign investment policy for single-brand retail.
The government diluted some contentious provisions to accommodate the demands of the Swedish company. These included doing away with the condition that the foreign company opening retail stores in India must own the brand being sold in these stores. The government also watered down the clause that made it mandatory for foreign retailers to source 30% of the products they sell in India from small-scale units.
Foreign direct investment into India has dropped 60% in April-August from a year ago amidst a general deterioration in the investment climate and experts hope the green signal to IKEA would spur foreign fund flows.



The government, while clearing Swedish furniture and homeware retailer IKEA’s application to set up shop in India, has disallowed it from selling food in its planned stores and offering financing to suppliers and customers.
The foreign investment promotion board (FIPB) has ruled that the firm will not be able to able to open its famed cafes and food markets, famous for selling products such as meatballs and Lingonberry jams, in its stores because that will violate the FDI policy on food retailing.
A government official privy to deliberations at a meeting of the FIPB, which on Tuesday cleared IKEA’s proposal to invest Rs.10,500 crore to set up retail stores in India, said the proposal had been cleared subject to several conditions.
Besides not being able to sell food, the company will not be allowed to mail newsletters to customers and also will be prohibited from selling old furniture, the official said. IKEA will also not be able engage in any finance activity on its own to customers or suppliers.
Globally, IKEA stores, which have long trading hours, have large cafes and food markets inside them and the company was keen on replicating the same international format in India as well. The cafes could not be approved because the single brand retail policy under which the application was made disallowed retailing of food.
It was felt that the company was engaged in the retail of furniture and other household products and thus food markets or restaurants could not be bundled. After carrying out several changes in its FDI policy to address concerns raised by IKEA, the government is keen to send out a signal that it has bent backwards to accommodate the company.
The company had put in its formal application earlier this month after the government relaxed the mandatory 30% sourcing clause in September.

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