May 03, 2013 09:11 AM IST | Source: CNBC-TV18

Govt gives nod to IKEA's Rs 10,500 cr FDI proposal

CNBC-TV18‘s Rituparna Bhuyan reports that the CCEA has cleared IKEA's Rs 10,500-crore FDI proposal after the company first filed the application in June 2012.

After two very long days, finally the Cabinet Committee on Economic Affairs (CCEA) has cleared IKEA's Rs 10,500-crore foreign direct investment proposal after the company first filed the application in June 2012, almost 12 months ago, reports CNBC-TV18's Ritupurna Bhuyan.

This clearing of the proposal is unique as the government went to the extent of modifying its policy to allay IKEA’s concerns on sourcing norms. The Cabinet said that IKEA will be able to source not only from small and medium enterprises (SMEs), but also from micro, small and medium enterprises (MSMEs).

After the Foreign Investment Promotion Board (FIPB) approval in January, the customary CCEA approval took almost four months.  Meanwhile, IKEA has been conducting surveys to test the market’s receptivity for its products. With the clearance by the Cabinet, IKEA will soon announce plans to establish its presence in India.

Cheering the Cabinet’s clearance of the IKEA proposal, commerce minister Anand Sharma told CNBC-TV18 that it was a “historic decision that reaffirms the government’s liberal economic agenda.”

IKEA India CEO Juvencio Maeztu hailed the clearance as a very positive development and added that India was an important market for the company with regards to sourcing. "We feel very welcome in India and will increase sourcing from existing and new vendors in India. This is a big step in the journey to open our stores in India."

Commenting on the clearance of the IKEA proposal, Pranay Sinha, managing director, Starcentres says that IKEA's entry will change retail standards in India and is very positive news. "The decision augurs well both for IKEA and India and the country should see much more investment in multi-brand retail in the future," he told CNBC-TV18.

Below is the edited transcript of the reactions on CNBC-TV18

Q: What do you make of this development?

Sinha: This is absolutely fantastic news. IKEA’s entry into the country will change the standards of the retail sector. This will make a very significant impact on the growth of the retail sector in India.

Q: While IKEA is willing to invest Rs 10,500 crore, why haven’t there been many takers even though the government has relaxed the single-brand FDI norms?

Sinha: I think when there is an opportunity for any international brand for getting somebody else to invest money in it and enter the market using that model - many brands across the world actually prefer that. They did not wait for FDI to become 100 percent to be able to enter the markets like Indonesia, Malaysia, Dubai and so on. So, on one hand, while there are a lot of brands which are interested in investing in India, ensuring 100-percent control and doing business in their way, there are also an equally large number of brands which are happy to extend their brand with a domestic partner. As far as brands not coming in on the FDI front is concerned, many are on a wait-and-watch mode.

Q: What do you make of IKEA's statement of using a model will be affordable?

Sinha: This augurs very well for the domestic retail sector in this country. With the entry of global brands such as IKEA, there will be an across-the-board change in standards in the retail sector.

Q: What is do make of the government changing the rules to clear the Rs 10,500-crore IKEA proposal?

Dua: I am very excited that finally FDI investment has begun to flow into the retail space. It is a positive development for India and IKEA.

Q: Will the overseas interest in India’s retail sector increase now?

Dua: I don’t look like there are going to be any difficulties now. The government cleared has it, Parliament has cleared it and now even the courts have approved the executive action.

To that extent, I think the fear of change of government resulting in reversing of the decision now is going to become all the more difficult because the Parliament is also in the picture.

It is not going to be merely a decision of the government in power or the government of the day in power. To that extent, it’s a reassurance that the system has been tested in the legislature, the courts of law and we should see much more investment in retail in the future.

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