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IKEA's wait to set up shop may get longer

January 10, 2013 09:33 IST

To set up shop in India, Swedish furniture maker IKEA may have to wait longer than it had anticipated.

Before sending the company's proposal to the Foreign Investment Promotion Board (FIPB) in the finance ministry, the government wants to examine it further, it is learnt.

The agenda for the next FIPB meeting, scheduled for January 18, does not mention IKEA's application. However, at times, additional items are listed for FIPB meetings even a day before the meeting.

After the last FIPB meeting on December 31, finance ministry officials had said the IKEA proposal would be considered in the next meeting.

Though there were indications the government may set up an inter-ministerial committee to examine IKEA's revised application, Saurabh Chandra, secretary, Department of Industrial Policy and Promotion (DIPP), told Business Standard, "No, not to my knowledge."

On why the FIPB agenda didn't include IKEA's proposal, Chandra said, "That's a call taken by the Department of Economic Affairs (DEA)."

He added DIPP had already commented on the issue. DIPP is the administrative department for retail trading.

The government wants to go the extra mile to prevent any deviation from policy, said an official close to the development.

Against the backdrop of several probes by the Comptroller and Auditor General and the Central Bureau of Investigation, government officials are particular about maintaining transparency in their affairs, said a bureaucrat.

"The mood is such that nobody wants to come under scrutiny later," he added.

At its meeting on November 20, FIPB had given a conditional approval to IKEA to invest Rs 4,500 crore (Rs 45 billion)

in India, while striking off a list of product categories the company wanted to bring to the country.

These included restaurants and cafes. Now, DIPP has clarified the company can set up restaurants and cafes in the premises of the IKEA stores, but it cannot sell food items anywhere else in the store.

Even as IKEA revised its product categories for the Indian market, the finance ministry and DIPP have been going back and forth on the matter.

Recently, in a letter to his DIPP counterpart, a senior DEA official said, "In the revised application/representation of Ingka Holdings (the applicant company for IKEA), what has been left out and why needs to be understood."

The official sought to know the "reasons for these changes at various stages" to ensure the matter could be put "in the right perspective in FIPB deliberations".

Responding to the letter, a DIPP official clarified IKEA's revised proposal had the "approval of the commerce and industry minister, according to the practice in all cases of single-brand retail trading".

The official added, "A clarification, if any, can be provided at FIPB deliberations."

Typically, foreign direct investment (FDI) proposals in single-brand retail are examined in the administrative department (DIPP), and after the minister's nod, these are forwarded/recommended to FIPB.

Though IKEA had proposed to invest Rs 10,500 crore (Rs 105 billion) in setting up 25 stores in India over a few years, FIPB had granted a conditional approval to invest only Rs 4,500 crore, the initial investment planned by the company.

Nivedita Mookerji and Surajeet Das Gupta in New Delhi