Swedish furniture maker Ikea will be allowed to do business in India exactly on the lines of its global model, commerce and industry minister Anand Sharma confirmed on Wednesday, indicating that the multinaltional would be allowed to sell products other than furniture and run cafes, as it does in other countries. Sharma was confident the government would soon clear Ikeas proposal, saying it had been held up because in the original proposal, the global retailer had not explained how its global business model worked. Ikea, which reported revenues of 26 billion euros in 2011 and has 338 stores, plans to invest R10,500 crore in India, rolling out 25 stores.
Speaking at the Idea Exchange programme of the Express Group, the minister said: Ikeas proposal based on its global model, which includes cafeterias, will be approved. The company simply needs to clarify what its global model is because we had sought a clarification on why it was not there in their earlier proposal, Sharma explained. The minister observed that although Ikeas proposal was not on the agenda of the Foreign Investment Promotion Boards (FIPB) next meeting on January 21 (earlier scheduled for January 18), it may be brought in as an additional item.
I have moved the file and the proposal goes to FIPB now and it should go through. They (Ikea) were right that their global range should be accepted, Sharma added. The ministers clarification means Ikea can retail a host of single-brand retail products like cosmetics, apparel and office products, as also run cafeterias.
Ikea had sought a review of the decision taken by the FIPB in November while approving its first tranche of investment worth R4,200 crore, wherein the board had struck off 18 product categories of the proposed 30 and refused permission to the company for opening signature cafes and restaurants in its stores. The board said Ikea could not sell items such as home and office-use products, textiles, apparel and fabric, electronic items, leather products, toys, books and lifestyle and travel-related items.
Ikea then approached the industry department, which forwarded the request to the FIPB seeking a review of its November 20, 2012, decision. Subsequently, the FIPB deliberated on the representation at its meeting on December 31, 2012, and sought clarifications from the company. Once the FIPB clears the companys proposal, it will go to the cabinet committee on economic affairs (CCEA) as is the norm for all foreign investment proposals exceeding R1,200 crore.
The government in September 2012 relaxed a provision requiring single-brand retailers to source at least 30% of their requirements from SMEs, modifying rules to say it was preferable rather than mandatory. Ikea will operate here through its wholly-owned subsidiary Ingka Holding Overseas BV and the investment of R10,500 crore will be the largest by a single-brand retailer. The FIPB has also okayed two single-brand FDI proposals of British footwear retailer Pavers England and a 51% JV of US luxury clothing retailer Brooks Brothers.