In the pipeline
New Delhi, Oct. 31: The government will finally deliberate over Ikea’s nearly $2-billion FDI proposal on November 20 — almost five months after the Swedish home furnishing major made the big-ticket investment offer, which got embroiled in a tug-of-war over the necessity of a mandatory sourcing norm that was meant to benefit small units.
The investment by Ikea in the single brand retail segment, through its 100 per cent subsidiary, will be the highest in this segment after the government opened up the sector. The Foreign Investment Promotion Board will take up the proposal on November 20.
IKEA will invest 600 million euros ($778 million or Rs 4,200 crore) to open 10 stores in the first stage. It will invest another 900 million euros ($1.1 billion or Rs 6,300 crore) to open 15 more stores later.
However, IKEA’s proposal has to be approved by the Cabinet Committee on Economic Affairs (CCEA) as the investment board can clear applications up to Rs 1,200 crore only.
Ikea and the government were at odds over a norm that made it mandatory for single-brand foreign retailers with more than 51 per cent stake in their Indian ventures to source 30 per cent of their requirements from local micro, small and medium enterprises (MSMEs).
The government had to relent and relaxed the norm to sourcing “preferably from MSMEs”.
Only after New Delhi made the changes in September, did Ikea formally file its application.
Besides, the sourcing requirements would be based on the total value of the goods purchased locally over a period of five years and not from the start of operations. The Swedish retailer initially sought a 10-year moratorium.
Ikea plans to sell items such as furniture, blankets, kitchen utensils, bathroom fittings, electrical equipment, tableware, cooking range, toys, leather articles, cosmetics, life style items, consumer electronics and gadgets. It also proposes to set up restaurants, food marts, nursing homes and publications under its brand name.
According to the riders in the FDI norms, the products by global chains should be “single brand” only and sold under the same brand internationally. Single brand retailing will cover products that are branded during manufacturing, and the foreign investor should be the owner of the brand.
Recently, the FIPB has cleared the proposals of three single-brand retailers, including British footwear retailer Pavers England’s plan to open fully owned stores.
It also approved a 51 per cent joint venture of American luxury clothing retailer Brooks Brothers and Italian jewellery maker Damiani’s plan to form a venture with Mehta’s Pvt Ltd.
With increasing disposable incomes, expansion of stores and supporting economic factors, the retail sector is expected to grow at 7 per cent over the next 10 years, reaching $850 billion by 2020.