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FDI hungry govt agrees to Ikea's demands

Last updated on: December 27, 2012 08:34 IST

FDI hungry govt agrees to Ikea's demands

Nivedita Mookerji and Sharmistha Mukherjee in New Delhi

This New Year's eve might turn out to be special for the Euro 25-billion Swedish furniture chain IKEA. It is likely to get a go-ahead for operating cafes and restaurants in India, along with its furniture stores.

In its next meeting, scheduled for December 31, the Foreign Investment Promotion Board (FIPB) is set to review its conditional approval given to the company on November 20, it is learnt.

FIPB had last month recommended the core furniture business of IKEA for consideration of the Cabinet Committee on Economic Affairs (CCEA), after striking off the chain's request for cafes/restaurants, besides 18 other product categories of the 50 it had proposed for India.

Even as IKEA had sought approval to invest Rs 10,500 crore (Rs 105 billion), FIPB nod came for just Rs 4,500 crore (Rs 45 bilion). But in a "review", FIPB will take up the IKEA case again, based on a "request of the Department of Industrial Policy & Promotion", according to the board's agenda note for the year-end meeting.

Replying to a query on IKEA on the sidelines of a conference on Wednesday, Commerce & Industry Minister Anand Sharma said: "IKEA has a global model as a single-brand retailer. And, we have a clear definition of what we describe as single-brand. We see no reason why its global model, once we have allowed 100 per cent FDI in single-brand retail, should be changed in any manner."

Pointing out that several large stores on the outskirts of cities had cafeterias because people shopped there for a long time, Sharma said the government had taken a favourable view of the furniture chain's representation in accepting its global model.

Ingka Holding Overseas, the applicant company for IKEA's investment proposal, recently sought government clarification and approval on the mandatory categories of products it could sell in India to make the IKEA concept possible, according to a company spokesperson.

The company is learnt to have conveyed to the Indian government that it was not ready to compromise on the "concept" it represented across the world, primarily referring to its signature cafes, restaurants and meat balls sold there.

IKEA, which operated over 300 stores in 40 countries, did not have outlets without the cafes and restaurants in any market across the world, a company executive said.

If FIPB revises its recommendation on IKEA, by approving its cafes and restaurants, this will be the second instance of the government paying heed to the company's concerns.

Earlier in the year, the government had relaxed the single-brand retail FDI policy, by removing the condition of 30 per cent mandatory sourcing from small and medium enterprises.

The move had come after IKEA told the government it was not feasible to follow the single-brand FDI norms with such rigid sourcing conditions.

Industry experts argued the government had been rather flexible with IKEA as it was the first mega foreign investment proposal after the rules were relaxed.

While the FDI limit for single-brand retail companies was increased to 100 per cent from 51 per cent last year, multi-brand retail sector was opened up for 51 per cent foreign investment in September. No investment proposal has come from any multi-brand retail chain yet.

Once FIPB gives a positive recommendation, the IKEA proposal would be taken up by CCEA.

Image: A warehouse of the Swedish furniture maker Ikea
Photographs: Alex Grimm/Reuters