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Govt sends formal letter to Ikea for setting up stores in India

Govt sends formal letter to Ikea for setting up stores in India

The government has finally sent a formal letter to Swedish furniture giant Ikea for setting up stores in India and investing Rs 10,500 crore subject to 15 conditions as communicated to the company by the commerce ministry.

The government has finally sent a formal letter to Swedish furniture giant Ikea for setting up stores in India and investing Rs 10,500 crore subject to 15 conditions as communicated to the company by the commerce ministry.

According to the letter, written by the ministry to Ingka Holdings Overseas, which will undertake single-brand retailing of Ikea products in India, "Ms Ingka Holding overseas, BV Netherlands, hereinafter referred as Ikea, will hold 99.9 per cent of the equity of this subsidiary while remaining 0.1 per cent of the equity will be held by Ms Ingka Pro Holding BV. The company proposes to invest Rs 4,200 crore in the first stage and Rs 6,300 crore in the second amounting to Rs 10,500 crore, which will be utilised towards establishment of 25 retail stores."

Sourcing norm
The letter makes sourcing of 30 per cent of the value of goods sold in India from domestic small industries mandatory. Though there is a small concession that procurement will be taken in the first instance as an average of five years of total value of goods pur-chased beginning April 1 of the years during which the first tranche of foreign direct investment (FDI) is received and thereafter it would have to be met on an annual basis.

Condition 6 says that retail trading by means of e-commerce would not be permissible. Besides, condition 9 says that goods sourced by Ikea India either directly or through the group entity and subject to the applicable provisions of the FDI policy should carry a certificate of origin of the goods and the certificate should be on record with the statutory auditor of Ikea India.

The company has also been told that single-brand retailing will only be carried out through exclusive standalone stores set up for retailing Ikea products and through no other formats. And, the stores will not sell products that carry any other brand name or are unbranded.

Besides, no activities falling within the purview of NBFC activities will be conducted by the applicant. Ikea will not sell any old furniture or products from its retail stores for profit.

The letter further states that Ikea will not manufacture items reserved for micro and small enterprises without prior approval of the government as per the prescribed policy and procedure.

Cafe issue
The issue of cafes has also been resolved as they will be allowed within the stores, but no food items will be allowed to be retailed in any other part of the stores. The company must also ensure that it takes adequate safeguards to the satisfaction of the government to prevent, air, water and soil pollution. "You may now proceed to finalise the agreement, " the letter, signed by Ishtiyaque Ahmed, director, ministry of commerce, said. The Cabinet had accorded permission for the Ikea proposal in May.

Courtesy: Mail Today