IKEA may be able to serve tea to its Indian customers after all

Swedish do-it-yourself furniture retailer IKEA may get its way on bringing its large-store format largely unchanged to India, according to latest indications from Anand Sharma, the commerce minister of India.

India’s foreign investment promotion board or FIPB, the body that gives approval to big direct investment proposals from outside the country, had “struck off” certain categories of goods such as gadgets, food and beverages, toys, curtains and kitchen utensils from IKEA’s application for starting business in India.

This had led IKEA to submit a representation to the government, pointing out that it would be difficult to run its mega furniture shops without being allowed to offer snacks and refreshments to the the visitors, and that it be allowed to maintain its store format intact in India. The company, which plans to invest about €1.5 billion (Rs 10,500 crore) in India, requested that certain “struck off” categories be reinstated in the permit.

It may get its wish, going by Anand Sharma’s response to reporters today.

He said the government has “taken very sensitively” to IKEA’s request.

“A note of the representation that IKEA had made in this regard, and a favourable view has been taken so that we accept their global model, and the process of FIPB formal approval is currently underway,” he said, indicating strongly that IKEA will not, after all, be forced to keep furniture buyers hungry.

Under Indian laws, 100% owned foreign companies can only sell items that are all under one brand. In IKEA’s case, all the items have to be manufactured for IKEA, and the stock cannot include items that IKEA will buy from the open market and resell. The items must have been “branded during manufacture” for that particular seller, according to Indian laws. As such, for example, IKEA may not be able to sell Coca Cola to its customers.

“We have a clear definition of what we describe as a single brand. That’s a product which is manufactured, branded during manufacturing, and which is globally sold, under the same brand name,” Sharma said.

At the same time, he said, the Indian government was not interested in throwing any spanner in the works as far as the subject of allowing IKEA to create world-class outlets is concerned.

“Frankly speaking, we see no reason why there global model, once we have allowed 100 pc FDI in single brand retail, has to be changed in any manner. That’s a single brand in any case. And all the stores globally, whether IKEA or any other single brand retailer, where people shop, and these are huge stores where people shop for long time, and they are normally in the outskirts of the cities. There are cafeterias inside..” Sharma said.