Friday, September 14, 2012

Retail reforms: Ikea gets a helping hand

The government on Friday eased the sourcing requirements for foreign retail chains looking to invest in the country, removing one of the key barriers that had hobbled the entry of new investment.

Foreign retail chains investing more than a 51 per cent via foreign direct investment (FDI) in the single-brand sector must still source 30 per cent of their products from India, Trade Minister Anand Sharma said on Friday. But the sourcing no longer has to be from small- and medium-sized industries, he said.

The requirement to source from small industries had proved an obstacle for companies such as furniture giant IKEA, which is looking to invest in Asia's third-largest economy.

India had earlier rebuffed a request by Ikea to relax rules on buying goods locally. Ikea, famous for its self-build flat-packs and huge stores, said last month it would invest Rs. 10,500 crore and open 25 outlets, throwing a lifeline to the government in India where economic growth has slowed sharply.

However, the Swedish company sought a 10-year window to comply with rules that foreign retailers source 30 per cent from local small and medium-sized firms, a requirement which overseas companies say discourages investment.

When contacted by Reuters, Ikea said a short delay in its formal application to enter the Indian market would not affect its decision to open stores, and hoped to start operations soon.

India offers Ikea a huge new market while the government is battling heavy criticism over its management of Asia's third-largest economy where growth has slipped to its weakest pace in nine years.