In the first official feedback to Swedish furniture major IKEA, the Department of Industrial Policy and Promotion (DIPP), under the Ministry of Commerce & Industry, has said it doesn’t favour the company’s condition of meeting the mandatory sourcing requirement only after 10 years.
On July 3, DIPP had, through its representatives, told the company prima facie, the 10-year period seemed too long. It has also sought the company’s comments on the contentious issue.
When asked about its response to DIPP’s statement, an IKEA spokesperson said, “We are in dialogue with DIPP. We will review any comment or query from the department and provide information in addition to our application, when necessary. It is, however, too soon to say what the answer to any such comment or query would be.”
Just a few days ago, IKEA had applied to the Foreign Investment Promotion Board (FIPB) to set up a single-brand retail chain on its own, promising an investment of euro 1.5 billion to set up 25 stores. As part of the riders for this, the foreign investor has to commit to sourcing 30 per cent of the value of its products from the small-scale sector, defined as industries that invest up to Rs 5.5 crore in plant and machinery.
However, in its application, IKEA had said it wouldn’t be able to adhere to this norm. It added the group “understands that complying with the mandatory sourcing of at least 30 per cent of the value of products sold is not a day 1 requirement, as the gestation period of a typical IKEA store is three to five years.”
DIPP has also sought clarification on the company’s request to provide self-certification, to be checked by its chartered accountants, on whether it was following the sourcing norms. This is against the stated policy for 100 per cent foreign direct investment (FDI) in single-brand retail, in which the certification has to be provided by statutory auditors. The department also sought clarification on the details of ownership between the applicant and the brand owner, which, in IKEA’s case, are separate entities. Details have also been sought on the agreement between the applicant and the brand owner. This is because under the FDI policy, a foreign investor has to be the owner of the brand.
DIPP has also sought details on the publication business the company wants to enter, along with the nature of activities it would be involved in. IKEA had earlier said it would also be involved in the “collection and purchase of old furniture”. The department has also sought details on the “indirect supply chain” mentioned in the application and the revenue the company claims would be included to calculate the mandatory sourcing norms.