The euro 25-billion Swedish furniture major IKEA is likely to send its final set of replies and clarifications to the department of industrial policy and promotion (DIPP) next week. This could mark an end to the back and forth taking place between the two sides since the company’s application was filed on June 22 and the St Petersburg announcement by commerce minister Anand Sharma.
DIPP’s queries are on the company’s request to have a 10-year leeway to start local sourcing and other relaxations sought in sourcing norms and brand-ownership issues. Other issues DIPP sought clarification on included a request from IKEA to engage its own chartered accountants to check whether the company followed sourcing norms.
Once DIPP vets the IKEA reply, the company’s application will be forwarded to the Foreign Investment Promotion Board (FIPB). After the FIPB clearance, it will go to the Union Cabinet for approval, as the investment amount involved is over Rs 10,000 crore. The entire process could take three to four months, sources pointed out.
Dilution of the sourcing clause in the single-brand retail policy, announced September 14, will benefit IKEA immediately. Earlier, it was mandatory for single-brand chains to source 30 per cent from MSMEs. Now, they must source that much from India. The Cabinet has tweaked the policy to state that MSME sourcing is “preferable”.
IKEA, which had told the government in its June 22 proposal that it was impossible to follow the 30 per cent MSME sourcing norm, has been in discussions with the commerce and industry ministry on relaxing the rulebook.
IKEA said: “We are positive to the development and remain hopeful we will soon be able to set up our first store in the country, subject to 100 per cent approval of our application by the government.”
IKEA wants to invest euro 1.5 billion over the years in India.
Another single brand norm that has been changed relates to brand ownership. “Only one non-resident entity, whether owner of the brand or otherwise, shall be allowed to undertake single-brand product retail trading in the country for the specific brand….” Till now, the investment had to be made by the owner of the brand. This step will benefit many single brand companies like Spanish clothing giant Zara and even IKEA.
IKEA may set up its first two to three stores in India within three years of getting government approvals, it is learnt. The company has a vision of establishing 10 stores over a 10-year horizon, and around 25 stores over a longer period.
