IKEA’s conditions may test India’s ability to woo foreign investment
Swedish home-furniture giant IKEA’s decision to invest about Rs 10,500 crore in India comes with a set of conditions that could be a test case for New Delhi’s ability to get foreign investment back on track. HT reports. Investing in India: Setting termsbusiness Updated: Jul 06, 2012 23:06 IST
Swedish home-furniture giant IKEA’s decision to invest about 1.5 billion euros (Rs 10,500 crore) in India through 25 stores, seen as a much needed sign of confidence in the economy, comes with a set of conditions that could be a test case for New Delhi’s ability to get foreign investment back on track.
IKEA’s June 22 investment announcement, a significant commitment by a foreign investor, could also act as a cue for other global retailers.But the iconic home accessories company wants India to tweak a clause that will require it to source 30% of the value of goods sold in India from domestic small industries whose investment does not exceed Rs 5.5 crore.
IKEA wants that the local firms that will supply its inventory should continue to qualify as small industries, even if their investments exceed Rs 5.5 crore after their association with the Swedish giant.
Such firms will very soon outgrow the stipulated valuation and become competitive medium to large set-ups, IKEA has said in its application to the government while seeking approval to set up stores in India.
IKEA also wants compliance of this condition to be calculated over a cumulative 10-year period, rather than annually.
The government originally notified these sourcing agreements will be carefully audited by a statutory authority. IKEA however wants that this be done through a process of self-certification initially, and subsequently by chartered accountants, and intimated as much to the government.
On Monday, July 3, the government wrote back to the furniture-maker through its advocates seeking ‘clarity’ on these conditions.
IKEA had been long eyeing the Indian market, and its decision to enter the country comes after India changed its investment rules to allow single-brand firms to open wholly-owned stores.
Such firms could previously only invest up to 51% in joint ventures. A proposal to open up multi-brand retail is still stuck amid political differences. The department of industrial policy and promotion (DIPP) has sought details from the IKEA on “fulfillment of the sourcing conditions,” including details of “indirect supply chain.”
“We are waiting for the government to go through the approval process and respond to us,” the company told HT in an emailed statement. “As and when the government needs more information about the application, IKEA is willing (to furnish it).”