The Indian government and the IKEA group are reportedly on the verge of a compromise on local sourcing rules. This would allow the Swedish retailer to operate in India, opening 25 stores across the country.
IKEA, the Swedish company that designs and sells ready-to-assemble home furnishing products, is said to be on the brink of gaining entry to India, according to a report in the Indian Economic Times newspaper.
In June, the Indian government made some changes to its Foreign Direct Investment (FDI) policies. It decided to allow foreign retailers, particularly single brand companies, to operate in India. The government is now allowing single brand corporations to own 100 percent of retail ventures, as IKEA was demanding. Ownership was previously capped at 51 percent.
The Economic Times report says that the new regulations would also require foreign companies to outsource at least 30 percent of their product manufacturing to small and medium-sized enterprises in India.
It goes on to say that IKEA is seeking to invest 1.9 billion euros in India over the coming years.
Experts say the Indian government wants to use the deal to prove that foreign investors are interested in investing in India despite a slowing economy and several corruption scandals.
Bad for local industry?
Last year, when the United Progressive Alliance (UPA) government led by Prime Minister Manmohan Singh said it was allowing multi-brand retail companies like Walmart and Carrefour to operate in India, the Indian opposition vehemently opposed the move. It said the decision would harm the businesses of India's small traders and farmers.
"The entry of multi-brand retailers is not good for the Indian economy," Ishteyaque Ahmad, a New Delhi-based social activist, told DW. "But these big stores will cater to a segment of consumers, so it won't have much impact on the poor people,” he added.
Ahmad also said that if IKEA and government struck a deal, this would be a clear policy shift which would have a long-term impact on the Indian economy.
Amita Arora Puri of the All India Artisans and Craftworkers Welfare Association told DW that "the entry (of IKEA) into the local Indian market should not be at the cost of local industry."
However, Puri commented that IKEA, with its "unmatched funds and global experience," could help local artisans and traders to improve their designs, product quality and production abilities.
'No clear consensus'
Indian experts say they are hopeful that the government and the IKEA will finally agree on a deal and that a compromise will be found. This, some say, would make India a "more business-friendly place."
But Paranjoy Guha Thakurta, a journalist, says people should not be too optimistic that the IKEA deal will go through.
"Two government ministries are not in agreement with each other on this issue. More importantly, there is no consensus on the IKEA deal even within the ruling coalition," Thakurta told DW, adding that the debate was still ongoing in India.