NEW DELHI: India has expressed surprise at top homeware retailer Ikea's purported thumbs-down on setting up shop in the country, saying the Swedish firm's misgivings about local sourcing clauses in the recent policy on single-brand retail needn't be a deal breaker.
Commerce and Industry Minister Anand Sharma, whose ministry put together the new policy that permits 100% foreign ownership in the single-brand retail sector, appeared taken aback by reports that suggested Ikea was considering withholding its entry into India because of requirements such as sourcing of 30% goods from local small and medium companies.
"I don't know where the problem is. The chief of Ikea had told me only last year that they were already sourcing 30% of their global wares from India and the figure will only increase in the future," he told ET.
On Tuesday, news reports suggested that Ikea, which for long symbolised the type of overseas company that would be attracted by the policy change, had found the conditions on local sourcing as "concerning".
Ikea CEO Mikael Ohlsson was quoted in one report as saying while the outright ownership of operations granted to foreign single-brand retailers earlier this month was "a very positive change", the local sourcing rules were more easily met by food retailers than single-brand companies with established, global product ranges.
A company spokeswoman was quoted as saying: "We have found that the conditions applied to local sourcing from small and mid-size enterprises might be difficult for us to live up to."
Sharma said nobody had approached him, specifically mentioning these sourcing rules as an impediment. But he hinted that the government could be flexible. Ikea and other overseas retailers such as Wal-Mart, Carrefour and Tesco already source a range of items such as clothes, rugs, toothpastes and dog food from Indian companies, with many of them having done so for years. These companies also want to sell in India, the third biggest retail market in Asia.
Supermarket chains such as Wal-Mart, Carrefour and Tesco, which sell products of multiple brands, cannot set up stores yet as foreign direct investment is barred in multi-brand retail. At the start of 2012, the government notified 100% foreign investment in single brand retail with a key condition mandating all proposals involving FDI beyond 51% to source at least 30% of the value of products sold from 'Indian small industries/village and cottage industries, artisans and craftsmen'.
Some retail industry experts have also suggested that overseas retailers had a bigger problem with the definition of SMEs, which could automatically disqualify several vendors.
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