India likely to open door to Ikea

Furniture retailer's application to set up stores will probably win approval, minister says

PUBLISHED : Friday, 04 January, 2013, 12:00am
UPDATED : Friday, 04 January, 2013, 2:48am

India is poised to approve furniture retailer Ikea's application to open stores as the nation seeks to lure more investment, Commerce Minister Anand Sharma said.

"It should go through," Sharma said on Wednesday. "There should not be any doubt in anybody's mind."

Ikea's proposal to invest as much as 42 billion rupees (HK$5.98 billion) in outlets selling items ranging from sofas and cutlery to hot dogs is awaiting a fresh approval from officials. The Swedish chain has sought clarification on whether it can sell the same types of products in India as overseas, posing a test of the nation's commitment to implementing policy overhauls aimed at reviving inflows to boost a struggling economy.

"Our focus is on attracting foreign direct investment," Sharma said. "2012 has not been an easy year for us, and we hope 2013 will be better because the decisions we have taken will lead to an increase in FDI."

Prime Minister Manmohan Singh's government in January 2012 allowed full foreign ownership of stores selling a single brand. Ikea, the world's largest furniture retailer, is seeking to tap demand in the second-most populous nation.

"It is our understanding that we will hear back about the application next Monday," Ikea spokeswoman Ylva Magnusson said on Wednesday. "Until we hear back from them, we cannot comment further."

India's ruling coalition in September permitted overseas retailers such as Wal-Mart Stores to set up multibrand supermarkets, part of a package of policy changes to spur growth. That step cost Singh his majority in parliament after some lawmakers said family-run stores would have to close.

The prime minister mustered enough support to win votes in the legislature in December on the plan to permit the entry of foreign supermarkets.

Sharma said retail liberalisation was now "cast in stone".

India's Foreign Investment Promotion Board first approved Ikea's application on December 21, and it is being reconsidered after the company asked for more information.

The administration opened other industries, such as aviation, to overseas investors in September, as well as curbing fuel subsidies to pare a budget deficit that has increased the odds of a credit rating downgrade to junk status.

Shares in Jet Airways (India) climbed 4.7 per cent yesterday on reports that Etihad Airways might purchase a 24 per cent stake in the Mumbai-based company, following the easing of aviation investment rules.

Foreign direct investment into India fell 42 per cent to US$14.8 billion in the seven months to October from a year earlier. The economy may expand as little as 5.7 per cent in the fiscal year to March, the weakest pace in a decade, according to the Finance Ministry.