Furniture giant IKEA plans to invest Rs 10K cr

First big proposal after clearance of 100% single-brand retail FDI

Written by ENS Economic Bureau | New Delhi | Published:June 23, 2012 2:18 am

Six months after the government allowed 100 per cent foreign direct investment (FDI) in single-brand retail,Sweden’s IKEA,the world’s largest furniture maker,has announced that it will be investing around Rs 10,500 crore in tranches for setting up 25 retail stores in the country.

In an application made to the Foreign Investment Promotion Board (FIPB),the company said that it wanted approval to hold 100 per cent FDI in IKEA India and to invest 600 million euros (approximately Rs 4,200 crore) in the first stage,and an additional estimated FDI of up to 900 million euros (approximately Rs 6,300 crore) “in a wholly-owned subsidiary to be engaged in import,export,marketing,distribution,warehousing,manufacture,production and retail trade of single-brand products,” an official said.

The company’s CEO Mikael Ohlsson,who met Commerce and Industry Minister Anand Sharma in St Petersburg today,confirmed the development.

The company will initially establish 25 retail stores in a wholly owned subsidiary while also raising sourcing for its global operations from India significantly. The company had reservations about the strict sourcing norms for bringing in FDI in single-brand retail. The guidelines require an entity to source 30 per cent of their requirement from small and medium enterprises. However,Sharma said that “suitable answers (to the company’s reservations) were provided leading to the decision to invest.”

This would be the largest investment in the single-brand retailing after the government approval in January.

The investment is likely to give a fillip to the investor sentiment in the country—FDI inflows have declined by 41 per cent in April.

The proposal will have to be approved by the Cabinet Committee on Economic Affairs (CCEA) as it exceeds Rs 1,200 crore. The Scandinavian company sells a range of products—from furniture and cosmetics to consumer electronics and gadgets. The proposal includes setting up of restaurants,food mart,nursing home and publications under its brand name.

Sharma and EU trade commissioner Karel De Gucht are likely to meet on June 25-26 for taking stock of the proposed broad-based trade and investment agreement between India and EU. Sharma said that despite the problems in global economy and the recent lowering of the rating outlook,investors’ confidence in India remains robust. The minister also met Olaf Koch,CEO of METRO AG,who told the minister that the company planned to raise the number of stores in the country from 10 to 16.

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