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2012-06-25

IKEA seeks relaxation in sourcing norms from small units

Swedish firm IKEA, which has proposed to invest Rs 10,500 crore to set up single brand retail stores in India, has asked the government that it must be allowed to continue sourcing from small industries even after the vendors have crossed the mandatory US

Swedish firm IKEA, which has proposed to invest Rs 10,500 crore to set up single brand retail stores in India, has asked the government that it must be allowed to continue sourcing from small industries even after the vendors have crossed the mandatory USD one million investment limit.

It has also proposed that the calculation of the 30 per cent norm be done for cumulative periods of 10 years of operations starting with the approval of the present application.

As per the present single brand FDI policy, global retailers would have to source 30 per cent of their requirement from Indian small industries which have a total investment in plant and machinery not exceeding USD 1 million.

The company, which has filled the application with the Department of Industrial Policy and Promotion (DIPP) on Friday, said that if IKEA group were to comply with this norm, such units will very soon outgrow the stipulated valuation of USD 1 million and become large set-ups.

Owing to the restriction contained in the FDI policy, such small industries may lose out on vast volumes of business from the Group, it said.

Moreover, it said that if the company would keep on changing its vendors, such abrupt change would also disrupt the quality of the products that would be released in the market and also the supply chain operations of IKEA group.

"The biggest impact would be on the small industries themselves, as if IKEA group stops doing business with such enterprises, several such industries using IKEA Group's designs and expertise would have to close down and hundreds, if not thousands of workers will be rendered unemployed," the company said in its application.

"DIPP is discussing with MSME ministry for the relaxation," an official said.

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