India has agreed “in principle” to give Ikea seven years to meet guidelines stipulating foreign, single-brand retailers sell products manufactured from 30 percent locally made or sourced content, the Economic Times newspaper said.
Originally the government had asked Ikea to comply with the local sourcing rules within one year of starting operations. The company countered with a request for 10 years grace.
Ikea in June asked India for permission to launch retail operations in India, promising to invest $1.9 billion over the coming years — part of a broader push into emerging markets including China and Russia.
The request was highlighted by the government as a sign that global investor confidence in India was “still intact” despite a sharply slowing economy, a slew of corruption scandals and suffocating red tape.
The sourcing stipulation is part of efforts by the left-leaning government to defuse populist opposition to the entry of big foreign retailers in a country where small mom-and-pop stores dominate.
Given Ikea’s high profile and recent government statements that it wants to make India a “more business-friendly place”, most analysts have said they believe a compromise will be found.
There was no immediate comment available on the newspaper report from Ikea or the government.
Ikea sees huge potential in India’s burgeoning middle class whose “wallet is still thin” but who want “inexpensive but nice home furnishings”, Ikea chief executive Mikael Ohlsson told AFP on a scouting mission to India two years ago.
Ikea’s move into India was spurred by a government decision at the start of the year allowing foreign companies to own 100 percent of “single-brand” retail ventures, up from an earlier cap of 51 percent.