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'We respect the govt's thoroughness, but...'

Nivedita Mookerji/New Delhi 06 Aug 12 | 12:53 AM

Govt examines ‘spirit’ of single-brand retail FDI to see if IKEA’s wishlist is digestible

IKEA, the Swedish furniture major which has offered a huge chunk of investment but only if the government relaxes various rules in this regard, says its back and forth dialogue has been “good and constructive" so far.

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Its spokesperson adds: “We respect the Indian government’s views and thoroughness in the approval process... (and was) receptive to the spirit and intention behind the 100 per cent single-brand FDI (foreign direct investment) policy."

On June 22, it had proposed to the Department of Industrial Policy and Promotion (DIPP) a 100 per cent controlled, single-brand, retail business in India. It was, it had said, prepared to invest euro 1.5 billion (Rs 10,500 crore) over 15 to 20 years to set up 25 stores in the country.

The FDI policy on single-brand retail says 30 per cent sourcing from Indian small industries by the foreign retailer is mandatory. However, it does not specify when the condition kicks off.

IKEA wants the government to allow the 30 per cent sourcing over 10 years and has said it should be also allowed to continue sourcing from its vendors even after they cross the $1-million investment limit set for suppliers to be counted as small industry.

It was in this context that the company’s spokesperson told Business Standard it was “receptive to the spirit" of the rules it wanted bent or waived.

It can be somewhat optimistic in this regard, as the government is, without coming on attributable record for the most part, been making similar noises. The ministry of micro, small & medium enterprises (MSME), at the centre of the sourcing issue, is learnt to feel that as long as there is no violation of the “spirit" of the cabinet decision on 100 per cent FDI in single-brand retail, it is fine. DIPP, too, is looking at the policy afresh to “interpret the spirit" behind it, an official said.

An official with direct knowledge of the matter told this newspaper the “Cabinet decision (on 100 per cent FDI policy) cannot be violated by anybody", adding that the “interpretation of the policy has to be done within limits".

According to this official, to ensure the “spirit" of the policy was not breached, a company like IKEA might be allowed to reach the 30 per cent sourcing target two to three years after the start of its India operation. However, the 10 years the company wanted seems too long a period for meeting this condition, he added.

The government is also working on changing the definition of SMEs to suit the requirements of foreign investors, Commerce and Industry Minister Anand Sharma had said yesterday. This was another of IKEA’s demands, that the government be flexible about the MSME definition.

While DIPP, which is examining the IKEA proposal, is yet to formally consult MSME on the company’s application and the concerns it had raised on sourcing, an official said the latter ministry would get a chance to be heard twice. When the proposal is moved to the Foreign Investment Promotion Board, all the ministries concerned would be part of the approval process. Subsequently, when the proposal goes to the cabinet (as the investment involved is over Rs 10,000 crore), the views of all the ministries would again have to be considered.

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