New Delhi: The fate of Swedish furniture maker Ikea’s proposed investment in India will now be known on 24 January, with the Foreign Investment Promotion Board (FIPB) rescheduling a meeting to decide whether to allow the retailer to open stores with cafeterias and a full range of its products.
FIPB, the agency that clears such proposals, was due to meet on Friday to consider for a second time Ikea’s plan to invest an initial €600 million (around Rs.4,330 crore today) to open 10 stores in India. In November, the agency pruned the list of items Ikea can sell in India and barred it from opening the cafes, famous for their signature meatballs.
Ikea’s proposed investment, which has become a test case for the entry of single-brand foreign retailers into Asia’s third largest economy, has been the subject of a tussle between the finance ministry and the commerce ministry. Commerce minister Anand Sharma has pushed Ikea’s case, but the finance ministry has been re luctant to clear it in its original form.
Foreign investors and retailers will be closely watching the outcome of Ikea’s application, said Gaurav Gupta, senior director at Deloitte Touche Tohmatsu’s India unit.
“This is the largest proposal to be made by a foreign retailer... So the government needs to send out a positive message to foreign investors, policymakers and multiple stakeholders across the globe,” Gupta said.
FIPB, which comprises the secretaries of various government departments, comes under the finance ministry and is chaired by the economic affairs secretary in the ministry. Foreign direct investment (FDI) policy, however, is overseen by the department of industrial policy and promotion (DIPP), an arm of the commerce ministry.
“DIPP’s job is to formulate FDI policy. Our job is to clear individual proposals based on the policy given by them. Let them do their duty and let us do our duty,” a finance ministry official said about the Ikea proposal.
The official, who spoke on condition of anonymity, said the finance ministry had expressed concerns about allowing Ikea to sell products reserved for small-scale industries ranging from wax candles to wooden furniture.
Sharma has expressed confidence that FIPB will allow Ikea to follow its global model.
“The government has taken a view, sensitively so, on the presentation that Ikea has made in this regard and a favourable view has been taken. So we accept their global model,” he told reporters on 26 December.
FIPB on 20 November referred the proposal to the cabinet committee on economic affairs as the proposal involves an investment of more than Rs.1,200 crore, the threshold for the agency. Ikea then made a presentation to the government, seeking approval of its original proposal.
FIPB first listed the proposal for reconsideration for 31 December at the request of DIPP. It deferred the meeting at the last minute, citing lack of enough time to discuss it. The 186th meeting of FIPB had been scheduled for Friday (18 January); this has now been shifted to the following Thursday, or 24 January.
In June, the Swedish company said it would, through its subsidiary Ingka Holding Overseas BV, invest €1.5 billion to open 25 stores in India. After investing €600 million initially, it plans to pump in an additional €900 million to open 15 stores in the next phase of its operations.
“We expect to have Ikea restaurants and cafes inside the Ikea stores in India as every other store worldwide,” an Ikea spokesperson had said last month in an email response to queries from Mint. “The Ikea cafe/restaurant is a mandatory and integral part of the Ikea concept and offer to our customers. The Ikea group is confident that the Indian government will support Ikea’s application as per the Ikea concept, and Ikea respects the Indian government’s efforts in this process.”
In January 2012, the government allowed 100% FDI in single-brand retail, but the response from overseas retailers was tepid because of conditions such as a requirement to source 30% of content from the small-scale sector. However, the government made this optional in September, while opening the multi-brand retail sector to foreign supermarket chains.