IKEA’s $1.86 billion investment faces hurdles

Even as the UPA government is brandishing the proposed $1.86 billion investment by IKEA as a sign of confidence in the Indian economy by global majors, there are indications that the Swedish major's entry will not be smooth.

While the department of industrial policy and promotion (DIPP) is believed to have accepted the key demands of IKEA, the ministry of micro, small and medium enterprises (MSME) is acting a spoilsport, putting up obstacles in its path.

Last month, the world's largest furniture manufacturer announced plans to invest $1.86 billion in India and opening 25 stores in the country. On Friday, prime minister Manmohan Singh referred to the announcement and said it reflected the confidence that international investors had in India.

But differences arose over some key issues relating to the investment, especially the one relating to the clause that a retailer has to source 30 per cent of the products sold at its stores from the domestic, small-scale sector.

The MSME insists that single-brand retailers – who are allowed 100 per cent FDI – should adhere to the 30-per cent mandatory sourcing requirement from the small-scale sector.

The ministry has also specified a cap of $1 million for the small-scale unit and if a vendor crosses the threshold, it would not qualify as a small unit. IKEA would then have to source products from another small-scale supplier.