Swedish company to open 10 stores in India in a decade
By R Chandrasekaran
The Indian governmentâ€™s clearance of the Swedish-based IKEAâ€™s proposal to set up single brand retail shop in India should boost the sentiments among other global players in the sector for similar ventures.
IKEA has submitted a revised proposal for investments of up to Rs.106 billion to set up shop first with Foreign Investment Promotion Board, which gave its approval in January last. The first approval came after lot of objections raised by the government and the clarifications given by the retail operator. The consultations also centered on what products to be allowed under the foreign direct investment (FDI) for single-brand retail.
The cabinet committee on economic affairs (CCEA) is the final authority to approve any investments of above Rs.12 billion. The CCEA was originally scheduled to decide on IKEAâ€™s proposal on Wednesday but postponed it to Thursday.
With the governmentâ€™s approval, the company will roll out its first store in 2014-15 and will launch 10 stores in the next one decade. It will be further expanded to 25 stores over a longer period of time. The company will likely to spread each store more than 100,000 square feet.
Everyone involved in the decision making, has hailed it as historic one.
While IKEA President & CEO Mikael Ohlsson viewed the approval as a positive development, Indiaâ€™s Commerce Minister Anand Sharma saw the CCEA decision as historic. The minister exuded confidence that the entry of IKEA will offer avenues for the small and medium enterprises in labor-intensive sectors. This is also expected to help Indian SMEs to integrate themselves with a global chain.
IKEAâ€™s president said, â€œFor many years, India is an important market for us from a sourcing perspective… we have been active in the country for over 25 years and will continue to increase sourcing in India from both existing and new suppliers, building on long-term relations and shared values.â€
It has been 11 months since IKEA first approached the government for clearance. However, the clearance should put the governmentâ€™s commitment for a liberalized economic agenda on a firm footing.
The Swedish retailer can now set up furniture stores in India. This includes its restaurants and cafes, which is their global concept. However, sourcing can be a concern since IKEA should source a minimum of 30 percent of what it sells in India from within the country. The government norms make it mandatory 30 percent sourcing from India and this cannot be used for exports.
The opposition to FDI in retail sector was well known with regional and national parties refusing to accept the government line of opinion. Though the sourcing could remain a concern, the approval of FDI in retail should set the tone for more chain of retailers to probe the untapped Indian retail market.
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