IKEA will have to resubmit application for opening stores

Swedish home furnishing major IKEA will have to revise its application and reapply to the government for opening stores in India after the relaxation of mandatory sourcing norms for FDI in single brand retail, an senior official said.

“The Department of Industrial Policy and Promotion (DIPP) is in continuous discussion with IKEA…The government has relaxed some norms.So they have to submit a revised application after the Cabinet’s decision,” a senior official said.

Reacting to government’s decision to relax FDI norms in retail sector last week, the company had said it would open stores in India only after the government approves its application in entirety. “We are positive to the development and remain hopeful that we will soon be able to set up our first store in the country, subject to 100 percent approval of our application to the Government of India,” an IKEA spokesperson has said.

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The government had tweaked sourcing norms for FDI exceeding 51 percent in single-brand retail and diluted the previous condition of sourcing 30 percent of requirements “mandatorily” from micro, small and medium enterprises (MSMEs) in India by stating that sourcing should be done “preferably from MSMEs”.

This was one of the major issues raised by IKEA while approaching the government in June this year with its plans to invest 1.5 billion euro (Rs 10,500 crore) in India to set up 25 stores.

The company had earlier said that “the conditions applied to local sourcing from SMEs might be difficult for it to live up to”.

It had also proposed that adherence to the mandatory sourcing requirement must be on the basis of cumulative periods of 10 years each from the date of approval. As part of the modifications announced last week, the government had said foreign firms, which want a relaxation of the 30 percent procurement norms, would have to set up manufacturing facility in India.

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In June IKEA proposed to invest 600 million euro (Rs 4,200 crore) in opening 10 stores in the first stage. The remaining 900 million euros (Rs 6,300 crore) was to be used to open 15 more stores. Besides, it had also proposed to set up restaurants, food mart, nursing homes and publications under its brand name.

PTI