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IKEA Drops Investment Plans In India Worth $1bn

IKEA drops investment plans in India worth $1bn

NEW DELHI: The iconic $ 31-billion Scandinavian home products giant, IKEA, has put on hold its plans to set up 25 showrooms across the country for an investment of around $ 1 billion. In an internal communication this week, IKEA told its stakeholders that Indian investment rules do not encourage it to go ahead with its investment plans — at least not in the near future.

The country's norms on foreign investments in retail stipulate that the foreign company can hold no more than a 51% stake and must have an Indian partner. As IKEA's distinctive showrooms are like sprawling malls, with flat pack furniture, accessories, bathroom and kitchen items, they require high investment. And IKEA has so far been unable to find an Indian partner with not just deep pockets but readiness to invest a matching amount in a joint venture.

It's learnt that IKEA was hopeful of the rules being relaxed by the new government, but was jolted by Pratibha Patil's silence on the issue in her presidential address that outlined the UPA government's agenda. It may have lost heart completely when commerce minister Anand Sharma said that FDI norms are not likely to be changed in the near future, and decided to opt out of India.

When contacted, a top IKEA source confirmed the company's decision. But they were quick to add that India as a market can't be ignored by IKEA indefinitely. "In a few years we are bound to reconsider our decision," they said.

IKEA had planned its first showroom near Dwarka, at a location that's between Delhi and Gurgaon. It had also hired 25-30 people for this venture. Their fate now is not known. Otherwise, IKEA has been sourcing many materials from India and employs around 11,000 in this operation, while it claims to be indirectly employing another 60,000. This outsourcing business is estimated at around Rs 1,900 crore.

India's retail market is estimated at over $350 billion, with organized retail accounting for 5% of it. An Indian economic think-tank optimistically projected early last year that the market size could grow to $590 billion by 2012 and organized retail could be a meatier 16% of that market. The economic downturn might have since dampened these projections.

IKEA was founded in 1943 by Ingvar Kamprad in Sweden and it is owned by a Dutch-registered foundation controlled by the Kamprad family. IKEA an an acronym comprising the initials of the founder (Ingvar Kamprad), the farm where he grew up (Elmtaryd) and his home parish (Agunnaryd).

IKEA operates over 300 stores in over 40 countries. It began exploring options here in 2006 and has also spoken earlier too of being stymied by government policy.

So Indian homes, it appears, will just have to wait a while longer for some Scandinavian chic.

Source: TOI

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