Exclude costs from 30% sourcing condition, says IKEA

The euro 25-billion Scandinavian furniture major IKEA has said it is receptive to the spirit and intention behind India's 100 per cent single-brand foreign direct investment (FDI) policy. However, on the question whether its entry into India was conditional, subject to changes in the policy, a spokesperson for the company said, “We need to respect the application process. Once our application is approved by the Government of India, we will be able to share more information about our intentions to establish retail operations in India.”

In the longer term, however, “the mandatory sourcing of 30 per cent of the value of goods sold in India from domestic small industries remains a challenge.”

While pointing out that the company would source (products, components and materials for exports and domestic sales) at least 30 per cent of the purchase value, excluding all taxes and duties, of products sold in India through Indian small industries, IKEA has set a rider to the definition of small industries. Small industries can invest up to Rs 5.5 crore in plant and machinery, the application says. Then, it adds, “This valuation shall apply to the industry at the time the IKEA group had first established a relationship with such industry and thereafter, such industry shall continue to qualify as 'small industry’ for this purpose”.

Almost dictating terms to the government, IKEA has said in its 37-page proposal that “consequently, IKEA group may continue sourcing from such qualifying industries.” Demanding a policy review, the company has told the Department of Industrial Policy and Promotion, “It is imperative and important that the government continues to review and modify its single-brand FDI policy by providing flexibility in relation to the 30 per cent mandatory sourcing requirements...”

The company has asked for the exclusion of costs incurred by it to make a product marketable while determining the 30 per cent sourcing requirement quantum. These costs could be linked to logistics, transportation, warehousing, storage, marketing and even taxes.