The Cabinet Committee on Economic Affairs (CCEA) on Thursday allowed IKEA to set up stores in India with an investment of Rs 10,500 crore, clearing the last hurdle in the way of the biggest foreign investment proposal in the retail sector so far.
The Cabinet approval has come 10 months after a deal to bring the ^25-billion Swedish furniture chain to India was sealed between Commerce Minister Anand Sharma and IKEA President & CEO Mikael Ohlsson during a St Petersburg summit.
IKEA’s application to invest Rs 10,500 crore in setting up stores in India, filed with the government on June 22, 2012, had got clearance from the Foreign Investment Promotion Board (FIPB) on January 21, 2013 — after many rounds of talks between the company and the government on what products should be allowed under single-brand retail. CCEA had to take up the proposal on Thursday, as an investment of more than Rs 1,200 crore is required to be vetted by the Cabinet.
After Thursday’s clearance, IKEA can set up furniture stores in India, along with restaurants and cafés, in line with its global concept. But sourcing worries remain, as the company must source at least 30 per cent of what it sold in India from within the country, according to government officials. They said the mandatory 30 per cent sourcing from India could not be used for exports to other geographies — an idea IKEA might resist.
Department of Industrial Policy & Promotion (DIPP) Secretary Saurabh Chandra, however, told Business Standard CCEA did not raise any concern on the sourcing matter. IKEA, which will need to comply with the guidelines over the next five years, currently sources $500 million worth of goods from India to export to other countries.
Calling the CCEA nod a very positive development, Ohlsson on Thursday said: “For many years, India is an important market for us from a sourcing perspective... we have been active in the country for over 25 years and will continue to increase sourcing in India from both existing and new suppliers, building on long-term relations and shared values.”
IKEA’s first India store is expected to come up in 2014-15. The company wants to establish 10 stores over the next 10 years and around 25 over a longer period. Each of these is likely to be spread over 100,000 sq ft. The company’s India CEO, Juvencio Maeztu, said in a statement: “This is a big step in our journey. We feel very confident that the people of India will love to visit and shop at IKEA.”
The commerce minister referred to the CCEA decision as “a historic one”. This would present an opportunity to the Indian small and medium enterprises in a wide range of labour-intensive sectors, helping them integrate into the global value chain, he said. The decision had reaffirmed the government’s commitment to maintaining a liberal economic agenda, the minister added.
NOD AT LAST
Jun ’12: IKEA files application with DIPP to invest Rs 10,500 cr in setting up stores in India; tells govt 30% mandatory sourcing from MSMEs impractical
Sep ’12: Govt notifies new single-brand retail policy; 30% sourcing must from India, preferably from MSMEs
Nov ’12: IKEA gets conditional FIPB nod to invest Rs 4,200 cr; cafés, 50% product categories stricken off
Dec ’12: IKEA tweaks application in keeping with FIPB requirements, DEA raises queries; Revenue department raises concern over treaty shopping
Jan 21, ’13: After three rescheduled meets, FIPB clears IKEA’s full proposal
May 2, ’13: CCEA clears IKEA’s proposal