India’s Largest FDI Investment in Retail Approved
- Created on Thursday, 02 May 2013 20:14
India on May 2, 2013 approved a plan to invest nearly US$ 2 billion (Rs 10,500 crore) by Ingka Holdings to
open stores in India for the first time in single brand retail trading of products under the brand “IKEA”.
Swedish furniture giant IKEA’s application to invest in setting up stores in India, filed with the government on June 22, 2012 has got the final approval from the Indian government. The Cabinet Committee on Economic Affairs (CCEA) on May 2, 2013 allowed single brand retail trading of products under the brand “IKEA” for M/s. Ingka Holding B.V., Netherlands to set up stores in India. Earlier on January 21, 2013 the Foreign Investment Promotion Board (FIPB) under Ministry of Commerce had cleared the investment proposal by IKEA. The Cabinet approval has come 10 months after the proposal was made by Ingka Holdings, an IKEA Group company. Currently, India requires CCEA approval for investment proposal of over Rs 1,200 crore (over US$222 million).
Commerce Minister of India Mr. Anand Sharma referred to the CCEA decision as “a historic one” also reaffirming the government’s commitment to maintaining a liberal economic policy.
With this IKEA's will be the largest investor in the single-brand retailing ever since the government allowed foreign investment in this sector in January, 2012.
IKEA plans to open 25 stores in India through a 100 per cent owned unit called Ingka Holding. IKEA’s first India store is expected to come up in 2014-15. The company wants to establish 10 stores over the next 10 years and around 25 over a longer period. Each of these is likely to be spread over 100,000 sq ft.
IKEA has been allowed to run cafes and restaurants within its single brand stores in India, but it cannot sell packed food items. As per the FDI guidelines IKEA must source at least 30 per cent of what it sold in India from within the country. The mandatory 30 per cent sourcing from India could not be used for exports to other countries. IKEA has been in India for nearly 25 years now sourcing goods from India to export to other countries. It currently sources $500 million worth of goods for overseas markets.
Welcoming the decision of the government, IKEA President & CEO Mikael Ohlsson said: “IKEA will continue to increase sourcing in India from both existing and new suppliers, building on long-term relations and shared values”. IKEA’s India CEO, Juvencio Maeztu, said the government decision was a big step in IKEA’s journey to India.
According to sources foreign retailers keen to set up fully owned ventures have been lobbying the government to consider their exports out of India for their global operations towards the 30% local sourcing under the policy.
It is also noticed that since the single-brand retailing policy was notified in January 2012, many clauses of the newly introduced policy has been modified by the regulators especially after IKEA raised concerns over sourcing and brand ownership issues, i.e., the mandatory 30% sourcing from “Small and Medium Enterprises” to preferably from “Small Business”.
Irrespective of the regulatory hurdles, certain mandatory obligations and the time required for the approval in IKEA's case, but this is going to bring other larger investments from global players including from France, the US, UK and Japan.