Swedish home furnishing major IKEA’S proposal to invest Rs 10,500 crore for setting up shops in India got the government investment promotion board’s approval on Tuesday.

This is the largest investment in the single brand retailing in the country ever since the government relaxed rules for investment in the sector in January. IKEA proposes to invest in single-brand retail trading through a 100 per cent subsidiary, and plans to set up 25 stores in the country.

The proposal, however, awaits approval of the Cabinet Committee on Economic Affairs, as the Foreign Investment Promotion Board (FIPB) can clear investment applications worth up to Rs 1,200 crore only.

The government had relaxed the mandatory 30 per cent sourcing clause in September, thereafter, IKEA, which had earlier expressed concerns over the issues, had filled its final application early in November.

The company had earlier indicated that it could invest up to $757 million in the first stage of its plan in India, and that its total investment over the next decade or two could eventually reach $1.9 billion.

However, the government’s mandatory provision of 30 per cent items sold by foreign retailers to be sourced from India’s small and medium enterprises, had the company’s reservations as believed that given the scale of its ambitions, its Indian suppliers could expect to grow well beyond the $1 million capital investment cap that defines small enterprises.

However, New Delhi finally agreed last month to relax the sourcing condition.
It now requires single-brand retailers to source 30 per cent of their products locally, “preferably” from small and medium enterprises.

Soon after the relaxation of rules, president and chief executive of the company Mikael Ohlsson had said he believed the new policy guidelines supported the business needs of many single-brand retailers, and that it would benefit consumers, as well as the development of suppliers and many producers in India.

Market players called the clearance of IKEA’s proposal a major step forward in India’s subdued current investment scenario.

The FIPB had last cleared three major proposals, which included British footwear retailer Pavers England Ltd to open fully-owned stores, a 51 per cent joint venture of American luxury clothing retailer Brooks Brothers and Italian jewellery maker Damiani’s plan to form a venture with Mehta’s Pvt Ltd.