India seen relaxing retail rules to keep IKEA from packing up

Thu Jul 19, 2012 3:54am EDT
 
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By Matthias Williams and Nandita Bose

NEW DELHI/MUMBAI (Reuters) - India's government appears set to relax heavily criticized sourcing rules for retailers, anxious not to scare off IKEA -- one of the few big name firms that has said it will invest in the country -- or any others willing to follow.

India kicked open the door to foreign retailers in January when it removed an investment cap for single brand chains to set up shop but then shot itself in the foot by imposing a requirement that companies had to source 30 percent from small local firms.

IKEA IKEA.UL and others have balked, and the government's response is being seen as a test case of how well it can revive flagging investor confidence at a time when economic growth has slowed to its weakest in nine years.

Signs point to backtracking on the part of the government, with a top official closely involved in framing retail policy telling Reuters that key clauses may be relaxed although the government was still discussing the pros and cons as well as the extent of any relaxation.

"We are in the process of finalizing our views about all this," said the official, asking firms to "be a little patient".

Analysts are confident there will be an easing of the rule.

"The government is in damage control mode. It realizes it has sent out a wrong signal by putting the thirty percent sourcing requirement for foreign retailers," said Saloni Nangia, senior vice-president for retail at Technopak consultants.

Prime Minister Manmohan Singh this month also held up the Swedish furniture giant's planned $1.8 billion investment as an example of investor confidence, while the trade minister said its already substantial amount of sourcing from India would be taken into account.   Continued...

 
People push a shopping cart past a warehouse of the Swedish furniture maker IKEA in Bordeaux, southwestern France, in this February 13, 2010 file photo. India's government appears set to relax heavily criticised sourcing rules for retailers, anxious not to scare off IKEA -- one of the few big name firms that has said it will invest in the country -- or any others willing to follow. To match story INDIA-RETAIL/IKEA Picture taken February 13, 2010. REUTERS/Olivier Pon/Files