Terming the decision of Swedish furniture maker IKEA to invest Rs 10,500 crore into single retail In India as “confirmation of investors’ confidence in India”, Commerce and Industry Minister Anand Sharma has said that many more global companies are likely to follow suit.
IKEA’s investment plans is a breather for the UPA which has been accused of scaring away foreign investors and dampening investor confidence by failing to enact reform. Sharma on Monday confirmed that the government is in the process of liberalising foreign investment regime in the country. “It is a confirmation of investors’ continued confidence in India and its economy and endorsement of our policy. I expect many more such announcements,” he said in Antwerp on Monday.
On June 22, IKEA has approached the government with a proposal to invest 1.5 billion euros (Rs 10,500 crore) to set up 25 retail stores in the country. It has asked the government that it must be allowed to continue sourcing from small units even after the vendors have crossed the mandatory one million dollars investment limit. It has also proposed that the calculation of the 30 percent norm be done for cumulative periods of 10 years of operations starting with the approval of the present application.
The company had earlier refused to set up stores in India, despite the FDI limit having been raised to 100 percent, over sourcing hurdles. According to a report in the Business Standard, IKEA in its application on 22 June to the Department of Industrial Policy & Promotion, said the group “understands that complying with the mandatory sourcing of at least 30 percent of the value of products sold is not a day one requirement, as the gestation period of a typical IKEA store is 3-5 years.
These rigid terms if approved would mean a complete change in India’s single-brand FDI policy. The move would help transform India’s largely unorganised $500 billion retail sector.
An IKEA investment could perhaps help policy makers send a signal to other foreign investors that the country is still an attractive investment destination. “Investors’ confidence in India, irrespective of country’s rating…without going into merit of their wisdom… fundamentals of our economy are strong and will remain strong,” said Sharma on Monday, adding in 2011-12, India received highest ever FDI of $50 billion in a single year.
Foreign companies have shelved India plans over the last year because of increasing concerns over regulatory hurdles, uncertainty, slowing growth, policy paralysis and stalled reforms to liberalise the foreign investment cap in various sectors that are in dire needs of cash. And dwindling foreign capital flows have pushed the rupee to record lows against the dollar too.
On Monday, the Reserve Bank of India announced measures to prop up the rupee and encourage capital flows into the country. However, the government failed to introduce any reform proposals. Inflation, huge trade deficits, and low internal and external business confidence in the UPA’s intentions are India’s real problems. “The real solution lies in encouraging either investment in rupee debt, or encouraging foreign equity investment by opening up many more sectors – including insurance, retail, aviation and other sectors – for more liberal investment,” noted a Firstpost story earlier.
Recently, leading global agencies Standard and Poor’s and Fitch have lowered the credit rating outlook to negative. However, their rival Moody’s on Monday retained its outlook about India despite challenges like lower GDP growth.
The Scandinavian company IKEA through its retail outlets would be selling products like furnitures, blankets, kitchen utensils, bathroom fittings, electrical equipment, tableware, cooking range, toys, leather articles, cosmetics, life style items, consumer electronics and gadgets. Besides, it also proposes to set up restaurants, food mart, nursing home and publications under its brand name.