In what could spoil the single-brand retail party, the Foreign Investment Promotion Board (FIPB) is learnt to have struck off as many as 18 product categories out of the 30 proposed by Euro 25-billion Swedish furniture major IKEA.
Coinciding with the din in Parliament over the government permitting 51 per cent foreign direct investment in multi-brand retail, single-brand retail would run into a rough patch too, if IKEA reviews its India entry plans over the fresh barriers thrown up by the FIPB.
It is believed many single-brand retail chains, including some from Europe, have been waiting for the green signal to the big-ticket IKEA proposal as a test case, before they send in their applications.
Some of the products rejected by FIPB
Industry sources pointed out that IKEA, which operates over 300 stores across around 40 countries, typically goes out to foreign markets with its full range of products and categories, and with so many categories deleted from its list, the chain might rethink on whether to enter the India market or not.
But replying to Business Standard, IKEA said, “We are now internally reviewing the details of the latest decision from FIPB.” The company said it would be in a position to comment on its India stand “when we are more clear about what it means for us in the coming days”.
The IKEA proposal was taken up by FIPB, a key wing in the finance ministry, for vetting foreign investment proposals, on Thursday.
Officials said the IKEA intent to invest Euro 1.5 billion in India to set up stores across the country was recommended for clearance by the FIPB, but with conditions attached.
Even as the earlier condition of 30 per cent sourcing from small and medium enterprises was removed from the single brand retail FDI policy following IKEA’s stand that it was not feasible to follow, the new set of conditions recommended by FIPB may upset its plans.
The category of items that FIPB has taken out of the list of what all IKEA can do in India include home and office use products, solutions, fittings, furnishings and accessories including stationery; textile products including apparels and fabrics; toys, books and gadgets; consumer electronics and accessories; decorative products; leather products; storage and sorting products and accessories; cleaning products and accessories; children products and accessories; safety-related products; travel-related products; cosmetics and accessories; gift articles and accessories; lifestyle products and accessories; beach products and accessories; recycling solutions and products; food and beverages to be served at the IKEA restaurants and café to customers in the IKEA retail stores; products under development by IKEA internationally as well as those developed especially for the Indian market.
IKEA has been permitted to sell furniture products, which is the chain’s core business, in India. Also, knocked-down furniture and accessories related to furniture would be allowed for sale. Other things that it can showcase and sell in India include cushions, pillows, rugs, mattresses, quilts, curtains, window shades, blinds, electrical and kitchen utensils, cooking range equipment, bathroom fixtures, tableware, mirror, frames, pictures, candles, and glassware products.
Besides the other restrictions, FIPB has also recommended that no activities falling within the purview of NBFC (non-banking financial companies) activities will be conducted by the applicant. That would imply that IKEA cannot offer any finance scheme to its customers.
A government official argued that “concessions and adjustments are bound to be made on both sides.” IKEA may decide to tailor its outlets accordingly, he added. Restriction on a few non-core products that may not contribute much to its bottom line may not pose a hurdle, he added.
IKEA, in its second coming, had made its application to the DIPP on June 22. It had earlier decided to drop the plan due to the FDI restriction in the country as the chain wanted to be on its own with 100 per cent ownership, rather than diluting its brand with a partner. The IKEA stores are expected to occupy as much as 100,000 sq ft of space each.