IKEA to invest Rs 10,500 cr in India, to open 25 outlets

It took a meeting in St Petersburg, Russia, for the euro 25-billion Scandinavian furniture giant IKEA to commit its investment in the Indian retail sector, almost six months after the government allowed 100 per cent foreign direct investment (FDI) in single-brand retail. IKEA chief, Mikael Ohlsson, today gave an assurance to Commerce Minister Anand Sharma at a luncheon meeting during the St Petersburg International Economic Forum that his company would invest euro 1.5 billion (Rs 10,500 crore) in India over the next 15-20 years. Besides 25 retail outlets, it plans to also set up restaurants, food mart, nursing home and publications under its brand name.

IKEA, which had earlier tried to enter India when 51 per cent FDI was allowed in single-brand retail, and, subsequently, decided to come on its own when the rules were relaxed, said it had filed an application with the Indian government for clearances to set up a fully-owned subsidiary. The company has filed the application through its advisor Titus and Co Advocates. The proposal needs to be finally approved by the Cabinet Committee on Economic Affairs, as the investment exceeds Rs 1,200 crore.

IKEA’s would be the second foreign investment so far since the government relaxed the rules for single-brand retail. UK-based footwear retailer, Pavers, was the first chain to apply under 100-per-cent FDI regime in April.
Even as the largest furniture chain of the world, with 287 stores, had earlier raised concerns over the sticky condition of sourcing 30 per cent of value from Indian small and medium enterprises for 100 per cent FDI, it has now decided to set up shop in India under the same norms.

An IKEA spokesperson told Business Standard that the “challenge related to 30 per cent sourcing remained”. A commerce ministry official pointed out “there are no changes made in the procurement conditions. There is no question of any dilution.”

“Having studied the guidelines, we believe we can live up to the guidelines and keep within the spirit of the policy,” the spokesperson said. Arvind Singhal, founder and chairman, Technopak Advisors, said the IKEA move would give the much-needed confidence to the international investor community. The company would invest euro 600 million (approximately Rs 4,200 crore) in the first stage and an additional Euro 900 million (about Rs 6,300 crore) later, totalling euro 1.5 billion, a commerce ministry statement said. It could initially open two-three stores, based on the current sourcing values, and raise the number to 10 over a 10-year year horizon, and around 25 over a longer period.

Among the other global brands that want to enter India on their own are GAP, Abercrombie, Prada, Hennes & Mauritz and Arcadia. Among global retailers that are already present in India, either through franchisee or local JVs, are Louis Vuitton, Christian Dior, Jimmy Choo, Zara, Marks & Spencer and Canali. French luxury brand Christian Louboutin recently got the government approval to operate in India.

Govt pumps in Rs 1,200-crore dose to boost exports

The Government has rolled out several sops, estimated at over Rs 1,200 crore, to boost sagging exports. This intervention comes at a time when merchandise exports have been hit by the demand slowdown in developed markets such as the Euro Zone and the US.

The booster dose comes on the heels of a modest 3.2 per cent annual growth in merchandise exports to $24.45 billion in April.

EPCG SCHEME
The 2 per cent interest subvention has been extended by a year to March 2013 for handlooms, handicrafts, carpets and small and medium enterprises as part of the annual supplement to the Foreign Trade Policy 2009-14 announced on Tuesday.

Labour-intensive sectors, such as toys, sports-goods, processed agricultural products and ready-made garments will also now be covered under the interest rate subvention scheme. The policy gives a thrust to employment creation, encourages domestic manufacturing, reduces dependence on imports, helps market diversification and cuts transaction costs for exporters, said the Commerce and Industry Minister, Mr Anand Sharma. However, he did not comment on the revenue implications.

The interest subvention had cost the exchequer Rs 996 crore in 2011-12. Considering that its scope is expanded now, the subvention is likely to cost the Government around Rs 1,200 crore, trade sources said.
Confident that the 20 per cent export growth will be sustained this fiscal too, Mr Sharma said the country was on course to meet the $500-billion export target by 2014. India expects exports to grow to $360 billion this fiscal, up from $303 billion last year.

Besides extending the zero-duty EPCG scheme by a year, the scope of the scheme has been enlarged.
Companies getting the benefit of TUFS (technology upgradation fund scheme) can now take advantage of the EPCG scheme. The Government also announced the introduction of a new post-export EPCG scheme.

SCRIPS FOR PAYMENT

The Centre has now allowed the use of scrips (licences for import purposes) for payment of excise duty for domestic procurement. The scrips are issued to exporters by the Government in lieu of duty and taxes paid on exported items. Earlier, only scrips from Served From India Scheme (SFIS) were so permitted for procurement of goods from the domestic market.

“This new measure will be an important one for import substitution and will help in saving of foreign exchange, in addition to creating additional employment,” said Mr Sharma, emphasising that the scrips provision could bring down the current account deficit (CAD), which touched 4 per cent at end December 2011.

“Petroleum prices are coming down. If it comes down below $90, we will get some relief and then there will be some curtailment in gold import,” Mr Sharma said. The Commerce Secretary, Mr S. R. Rao, said the domestic procurement through scrips is a singular step that would help reduce the import bill. “We need to control our commodity imports, both oil and gold, but what we are also doing is import substitution,” Mr Rao said.

Drug export up 27% at Rs 60,000 crore in FY 12

India's exports of drugs, pharmaceutical & fine chemicals grew 27% to Rs 60,000 crore for the year ended March 2012, according to data compiled by Pharmaceutical Exports Council of India (Pharmexcil).

The export figure is now close to the size of the Indian formulations market which currently stands at around Rs 62,000 crore, which is growing at 15-20% annually.

However, the exports and the local formulations numbers are not comparable as the exports data include sale of active pharmaceutical ingredients or basic raw materials used to make drug. The revenues of the domestic market takes into account only branded finished medicines.
US, the world's largest drug market continues to be biggest overseas market for local drug makers accounting for about Rs 11,500 crore during the nine-month period (April-December), the latest figure for individual countries available with Pharmexcil. Indian companies exports low-cost version off-patented drugs to over 200 countries and is often referred to as the global pharmacy.

Among companies, Hyderabad-based Dr Reddy's Laboratories is the country's largest exporter. But in November, Ranbaxy launched its generic version of the world's best selling drug Lipitor and is estimated to have raked in about $600 million or Rs 3000 crore during an exclusive six month period which will substantially increase the company's exports figure.

India has potential to become R&D hub

 A study says India has become a key contributor in global research and of growth in the Asia-Pacific region, playing host to one-third of top 1000 R&D spenders in the world.

The study done by market advisory firm Zinnov, 'Global R&D Benchmarking Study: FY2011' analyzed trends in R&D investments globally. After witnessing a decline in global R&D spending in FY2010, the study says the FY2011 has seen an increase in spending and the potential for India to be among the top nations for R&D has only gotten stronger.

Commenting on the study, Sidhant Rastogi, director - Globalization Advisory, Zinnov, said: "The sentiment on the role of R&D in driving the future continues to remain positive across geographies, supported by the significant increase in R&D spending in FY2011. Global R&D investments have grown by 8.2% as compared to previous year FY2010. This growth has been primarily driven by organizations in the semiconductor, industrial and consumer hardware and electrical & electronic sectors".

"India definitely has the right potential to become a key R&D hub, not only in software for which it has gained recognition globally, but also in other verticals such as aerospace, automotive and defence", he added. One of the key highlights of the report is that there is a talent pool of 220,000 in MNC subsidiaries in the country, and these MNCs have spent $7-7.5 billion on the headcount in India in FY2011 alone. The study also found that the opportunity areas for India to attract R&D investment span over 13 sectors, with software being the most invested-in sector. Global net sales and global R&D spending have grown at 13.55% and 8.2% respectively with the contribution of spend divided across North America, European Union and APAC regions.

The total R&D investment globally is on the rise, and the North America and EU region continue to dominate. The contribution of R&D investment from across geographies is 36% for North American companies, 34% for European Union headquartered companies and 7% for APAC companies. Though the APAC regions contribution (as a percentage of global R&D spend) is seemingly small, what is noteworthy is that within the region R&D investments have increased a significant 28% as against the previous year.