It took a meeting in St Petersburg, Russia, for the euro 25-billion Scandinavian furniture giant IKEA to commit its investment in the Indian retail sector, almost six months after the government allowed 100 per cent foreign direct investment (FDI) in single-brand retail.
IKEA chief, Mikael Ohlsson, today gave an assurance to Commerce Minister Anand Sharma at a luncheon meeting during the St Petersburg International Economic Forum that his company would invest euro 1.5 billion (Rs 10,500 crore) in India over the next 15-20 years. Besides 25 retail outlets, it plans to also set up restaurants, food mart, nursing home and publications under its brand name.
IKEA, which had earlier tried to enter India when 51 per cent FDI was allowed in single-brand retail, and, subsequently, decided to come on its own when the rules were relaxed, said it had filed an application with the Indian government for clearances to set up a fully-owned subsidiary. The company has filed the application through its advisor Titus and Co Advocates. The proposal needs to be finally approved by the Cabinet Committee on Economic Affairs, as the investment exceeds Rs 1,200 crore.
IKEA’s would be the second foreign investment so far since the government relaxed the rules for single-brand retail. UK-based footwear retailer, Pavers, was the first chain to apply under 100-per-cent FDI regime in April.
Even as the largest furniture chain of the world, with 287 stores, had earlier raised concerns over the sticky condition of sourcing 30 per cent of value from Indian small and medium enterprises for 100 per cent FDI, it has now decided to set up shop in India under the same norms.
An IKEA spokesperson told Business Standard that the “challenge related to 30 per cent sourcing remained”. A commerce ministry official pointed out “there are no changes made in the procurement conditions. There is no question of any dilution.”
“Having studied the guidelines, we believe we can live up to the guidelines and keep within the spirit of the policy,” the spokesperson said.
Arvind Singhal, founder and chairman, Technopak Advisors, said the IKEA move would give the much-needed confidence to the international investor community.
The company would invest euro 600 million (approximately Rs 4,200 crore) in the first stage and an additional Euro 900 million (about Rs 6,300 crore) later, totalling euro 1.5 billion, a commerce ministry statement said. It could initially open two-three stores, based on the current sourcing values, and raise the number to 10 over a 10-year year horizon, and around 25 over a longer period.
Among the other global brands that want to enter India on their own are GAP, Abercrombie, Prada, Hennes & Mauritz and Arcadia. Among global retailers that are already present in India, either through franchisee or local JVs, are Louis Vuitton, Christian Dior, Jimmy Choo, Zara, Marks & Spencer and Canali. French luxury brand Christian Louboutin recently got the government approval to operate in India.