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Govt writes to IKEA: Sourcing norms not for global operations

NEW DELHI: Giving formal approval to IKEA for setting up stores in the country, government has informed the Swedish furniture major that its sourcing from India for global operations will not be counted under the sourcing requirements for running single-brand retail stores. 

The commerce and industry ministry, in a five-page letter dated June 14, gave approval to the company to sell 18 categories of products, including textile furnishing, bathroom products, kitchen utensils, electrical, mirrors, boxes and bags, beach and outwears, glassware, earthenware, home renewable energy and home safety. 

IKEA already sources products worth 1 billion euros from India and mainly from handloom and carpet clusters.

Clarifying the point, the letter said: "...sourcing from IKEA entity from India or the Indian entity of the IKEA group cannot be included for compliance of IKEA India." 

As per the 
FDI policy for single-brand retail trading, companies with over 51% foreign investment will have to source 30% of the value of goods from India, preferably from MSMEs, village and cottage industries, artisans and craftsmen, in all sectors. 

The quantum of domestic sourcing will be self-certified by the company and subsequently checked by statutory auditors from the duly certified accounts which the company will be required to maintain. 

The letter said IKEA's Indian arm has to register shops with the "concerned authorities in the concerned states/UTs" and the company has to take a license from the government if it wants to manufacture items reserved for MSMEs. 

As many as 20 products are reserved for exclusive manufacture in MSME sector, including bread, pickles and chutneys, wooden furniture, glass bangles, agarbattis, laundry soap and steel almirahs. 

The firm had proposed to set up a total of 25 stores. In the first stage, it would 
invest about Rs 4,200 crore and in the second stage Rs 6,300 crore. 

IKEA has also been allowed to run cafes and restaurants within its single-brand stores in India, but it cannot sell packed food items. It can sell food and beverages at its restaurants/cafes located within the stores. 

The government on May 2 approved IKEA's Rs 10,500 crore proposal to set up home furnishing stores in the country. 

As on date, the Swedish major's investment is the largest in the single-brand segment ever since the government allowed 100% foreign investment in this sector last year. 

According to sources, IKEA has identified four states — Haryana, 
Andhra Pradesh, Maharashtra and Karnataka — to set up stores. The company's plan was conveyed by IKEA CEO Mikael Ohlsson to commerce minister Anand Sharma.