The world's largest furniture retailer, IKEA, on Saturday said it is "disappointed with the customs duty hike (on furniture) announced in the Union Budget 2020-21" and is evaluating the impact of the hike on its furniture and furnishings business.
On Saturday, while presenting the Union Budget 2020-21, finance minister Nirmala Sitharaman said the government will hike custom duties on imported furniture from the current 20% to 25% to safeguard the interests of India's micro, small & medium enterprises. The FM added that special attention has been given to put measured restraint on import of those items which are being produced by Indian MSMEs with better quality. She stressed that labour intensive sectors in MSME are critical for employment generation. Cheap and low quality imports are an impediment to their growth, the FM said.
The Swedish retailer that launched its maiden store in India in 2018 imports furniture for its local business from all over the world. It relies on its large global sourcing and supply chain network to sell affordable furniture and furnishing at its over 370 stores globally.
The duty hike will have an impact on IKEA's India business--a key market for the retailer where it has been rapidly shoring up presence through its stores online and offline. It relies on selling low priced products, especially for middle-income households. "We have a long term and ambitious growth and investment plan and an open and stable policy regime is crucial for long term investors," Peter Betzel, CEO IKEA India said in a statement. “To maximise local sourcing from India is our very important priority in India and we would like to continue collaborating with the government to create the right ecosystem. As a home furnishings company, we are aligned with the housing for all agenda for which affordability for the many people is key. IKEA is disappointed with the customs duty hike announced in the Union Budget 2020-21 which impacts furniture and many other home furnishing categories. We are further evaluating the impact of the hike on our total business," Betzel added.
Currently, 75% of the value of goods sold by IKEA in India are imported. However, the company plans to reduce its dependence on imports gradually to 50%.
IKEA also sources from India, a market where it first started procuring goods for its global operations over three decades ago. As part of its plans to invest in India, the company needs to comply with India's sourcing norms for single brand foreign retailers that require such companies to buy more goods from the local market for sale in India, and globally.
In 2019, IKEA's revenue from its first and only store in the city of Hyderabad crossed Rs400 crore, according to a report by The Economic Times newspaper. The retailer, popular the world over for its DIY furniture and functional designs, has set a target of attracting 100 million middle-class shoppers in India as it rushes to open more stores here.