Swedish furniture maker IKEA’s much talked about entry into India’s single-brand retail space was cleared by the Foreign Investment Promotion Board (FIPB) on Tuesday. IKEA proposes to bring in Rs 10,500 crore of foreign direct investment (FDI), the largest in the category so far.
“FIPB has approved the proposal of IKEA,” Economic Affairs Secretary Arvind Mayaram told reporters after a meeting of the board to consider FDI proposals. The proposal will now go to the Cabinet Committee on Economic Affairs (CCEA), as is the norm for all proposals worth Rs 1,200 crore and above.
IKEA plans to set up 25 single-brand retail stores in India through its 100 per cent subsidiary, Ingka Holding Overseas BV.
In its last meeting in October, the FIPB had cleared three single-brand FDI proposals, including that of British footwear retailer Pavers England to open fully owned stores at an investment worth Rs 98.26 crore.
In November 2011, the government had allowed 100 per cent FDI in single-brand retail. In June this year, IKEA had sought permission to enter the single-brand space. However, it had asked for dilution of the 30 per cent sourcing requirement from micro, small and medium enterprises (MSMEs). MSMEs are defined as units whose total investment in the plant and machinery does not exceed $1 million.
IKEA had said it would be difficult to comply with the condition in the case of luxury brands involving high technology.
Accepting the demand, single-brand retail norms were diluted in September this year. The 30 per cent sourcing from MSMEs was changed to ‘preferred’ from ‘mandatory’. So, companies are now free to source it from MSMEs or not, but they will have to do so only from Indian companies.