IKEA gets FIPB nod to set up shop in India

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The foreign investment promotion board (FIPB) headed by economic affairs secretary Arvind Mayaram on Tuesday gave the green signal to Swedish furniture giant IKEA’s proposal to invest over Rs 10,000 crore to set up fully-owned stores in India.

The proposal will now go to the cabinet committee on economic affairs as the FIPB can clear applications for investments up to Rs 1,200 crore only.

Once cleared, it will be the largest foreign investment in single-brand retail after government raised foreign ownership in the sector to 100 per cent from 51 per cent last year.

IKEA will have to compete with already existing players in the segment that include Pantaloon Retail’s HomeTown, Lifestyle International’s Ho­me Centre and Shoppers Stop’s Home Stop. Together these three account for just 5-10 per cent of the organised market estimated to reach $15 billion by 2014.

IKEA, founded by Swedish billionaire Ingvar Kamprad in 1943, proposed in June to invest Rs 10,500 crore to set up 25 stores in two phases.

The investment in the first phase will be Rs 4,200 crore (10 stores); the remaining Rs 6,300 crore will come in the second phase.

The company had not been happy with the requirement of 30 per cent mandatory sourcing from domestic micro, small and medium enterprises. The government tweaked the sourcing norm in September, paving the way for IKEA. The company can now also source from bigger players.

IKEA, known globally for its furniture and household goods, plans to invest in India through a group company called Ingka Holding Overseas. The company has already been sourcing goods worth $600 million from India, primarily textiles and carpets, and this is expected to go up to $1 billion.

It has 70 suppliers and 1,450 sub-suppliers in India, supporting its global operations with 325 stores in 40 countries.

IKEA’s proposed investment will give a big push to foreign fund inflows, especially in the retail sector which received only Rs 204 crore of foreign capital since 2000.

FIPB in its last meeting had cleared three single brand FDI proposals: one was from British footwear retailer Pavers England to open fully-owned stores; a 51 per cent joint venture of American luxury clothing retailer Brooks Brothers and Italian jewellery maker Damiani’s plan to form a venture with Mehta’s.

“IKEA caters to first-home buyers and value-conscious customers. It will create a niche in India and help grow the market,” Mahesh Shah, president of Home Centre at Lifestyle International, said.

Manish Parekh, executive director of Nilkamal, too felt that IKEA would help grow the market with standardised, machine-made furniture. “Customer shifts to readymade, functional furniture will accelerate,” he said.

(With inputs from Meghna Maiti in Mumbai)


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