We respect the govts thoroughness,but

Govt. examining spirit of single-brand retail FDI to see if IKEAs wishlist digestible.

Presented By, Rukku, Ruksana & Sebin (UNIT 8)

 IKEA, the Swedish furniture major which has offered a huge chunk of investment but only if the government relaxes various rules in this regard. Its spokesperson adds: We respect the Indian governments views and thoroughness in the approval process... (and was) receptive to the spirit and intention behind the 100 per cent single-brand FDI (foreign direct investment) policy. On June 22, it had proposed to the Department of Industrial Policy and Promotion (DIPP) a 100 per cent controlled, single-brand, retail business in India. It was, it had said, prepared to invest euro 1.5 billion (Rs 10,500 crore) over 15 to 20 years to set up 25 stores in the country.

 The FDI policy on single-brand retail says 30 per cent sourcing from Indian small industries by the foreign retailer is mandatory. However, it does not specify when the condition kicks off. IKEA wants the government to allow the 30 per cent sourcing over 10 years and has said it should be also allowed to continue sourcing from its vendors even after they cross the $1-million investment limit set for suppliers to be counted as small industry. An official with direct knowledge of the matter told this newspaper the Cabinet decision (on 100 per cent FDI policy) cannot be violated by anybody, adding that the interpretation of the policy has to be done within limits.

 According to this official, to ensure the spirit of the policy was not breached, a company like IKEA might be allowed to reach the 30 per cent sourcing target two to three years after the start of its India operation. However, the 10 years the company wanted seems too long a period for meeting this condition, he added. The government is also working on changing the definition of SMEs to suit the requirements of foreign investors, Commerce and Industry Minister Anand Sharma had said yesterday. This was another of IKEAs demands, that the government be flexible about the MSME definition. While DIPP, which is examining the IKEA proposal, is yet to formally consult MSME on the companys application and the concerns it had raised on sourcing, an official said the latter ministry would get a chance to be heard twice. When the proposal is moved to the Foreign Investment Promotion Board, all the ministries concerned would be part of the approval process. Subsequently, when the proposal goes to the cabinet (as the investment involved is over Rs 10,000 crore), the views of all the ministries would again have to be considered.

Why you should look forward to IKEA's entry into India?

Set benchmarks in retailing
In a way, IKEA's entry is a great kick-off for organised retailing. This is perhaps the most trusted, ethical and revered brand in the retail world. Of course Walmart is the biggest, but the giant which excels in selling low-priced goods is also universally hated for squeezing out suppliers and exploiting employees. Even Apple has had to deal with accusations of exploiting Chinese workers. IKEA, an unlisted familyowned company, is an exception. "In its long history of existence, there is not even a whiff of scandal about them. It is a long-term player," says Arvind Singhal, chairman, Technopak Advisors.

 A delight for customers

Furniture and furnishings are dominated by the unorganised sector with poor quality goods available at high prices. IKEA's entry could change that. The company is known for fashionable, quality products at a good price. Its designs are simple and have plenty of options in different price ranges. Its products have been received well in emerging markets like China and Russia. Going by the global experience, shopping at its stores will be a delight. Cheap and good food is a big attraction. In Sweden, the meat balls served at their outlets is a hit. Expect all that to happen in India when they come here.

 The back-end story

IKEA's entry will make a big difference at the back end. Typically, IKEA does not invest in factories. But it works closely with enterprising entrepreneurs to upgrade and upscale the stores to meet its global quality and supply standards. This means many small and unorganised manufacturers in furniture and furnishing segments will benefit. IKEA's relationship with its vendors is collaborative and not exploitative for which Walmart has earned a bad reputation

 Good news for exports

The global furniture industry is estimated at $400 billionplus but exports from India, barring carved wood products, is negligible. That could change with IKEA's India entry. While IKEA might use some of its Indian vendors for its global needs, being an IKEA supplier will also open many other doors for Indian vendors. Though India is not rich in natural wood, IKEA could help develop new non-wood categories like outdoor patio furniture, etc. A large number of these vendors will be small and medium enterprises. Hence, this will help create manufacturing jobs at the bottom end of the pyramid.

Thank You!!