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IKEA clears first hurdle

New Delhi, Nov. 20: IKEA’s single-brand retail plans took a big leap today with the Foreign Investment Promotion Board clearing the Swedish home furnishing major’s Rs 10,500-crore proposal to set up a chain of stores in the country.

The proposal now needs only to be vetted by the cabinet, which is widely expected to give its approval, marking a swift culmination to the process that had at one time got bogged down over sourcing norms.

This will be the largest foreign investment in single-brand retail.

“The FIPB has cleared the proposal,” economic affairs secretary Arvind Mayaram said after the meeting.

The proposal has to be finally approved by the Cabinet Committee on Economic Affairs (CCEA) as the FIPB can clear investments up to Rs 1,200 crore only. The CCEA is widely expected to give the go-ahead.

IKEA will invest 600 million euros (Rs 4,200 crore) to open 10 stores in the first phase. The remaining 900 million euros (Rs 6,300 crore) will be used to open 15 more stores.

The FIPB in its last meeting had cleared three single- brand FDI proposals — British footwear retailer Pavers England’s offer to open stores, a 51 per cent joint venture proposal of US luxury clothing retailer Brooks Brothers and Italian jewellery maker Damiani’s plan to set up a venture with Mehta’s Pvt Ltd.

IKEA had sought permission in June and filed an application only this month after the government relaxed the mandatory 30 per cent sourcing norm in September.

Following concerns expressed by IKEA and other global retailers, the sourcing norms for FDI exceeding 51 per cent in single-brand retail were tweaked in September. The previous condition to source 30 per cent of requirements “mandatorily” from micro, small and medium enterprises (MSMEs) was diluted by stating that sourcing should be done “preferably from MSMEs”.

 
 
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