But after complaints from IKEA over the curbs, commerce minister Anand Sharma said late Wednesday that the government has taken a "favourable view" of its request and the process of formal approval is underway.
IKEA had told the Indian government the company must be allowed to retain its "global model" in India, retailing all of its products and running its in-store restaurants as it does in every country where it has operations.
"We accept their global model," Sharma said in a statement, adding: "We see no reason why their global model has to be changed in any manner."
The investment panel is due to take up IKEA's new proposal at a meeting next week.
IKEA's entry into India - it has pledged to invest $1.9 billion in coming years - is being closely watched as a test case for how a large foreign corporation negotiates India's byzantine rules and red tape.
The government in September announced a string of pro-market and investor-friendly reforms that relaxed or removed barriers to foreign retailers.
IKEA hopes to open 25 of its stores in India through a 100-percent owned unit, Ingka Holding, as part of a wider push into emerging markets like China and Russia.
IKEA said in a statement to AFP emailed on Thursday that it had no immediate comment on Sharma's statements and it was awaiting the outcome of government deliberations on its application.
But it added that it was "confident that the Indian government will support IKEA's application as per the IKEA concept".