Wednesday, June 27, 2012

Some lights are blinking here and there – Daimler and IKEA in India

After a series of bad news there are some good ones in the horizon. 

One is Daimler's $889mn investment in Chennai for truck production. This plant - in Oragadam - will sell 25 metric tonne trucks under BharatBenz brand. This plant has an initial capacity to produce 36000 vehicles annually, employing 1400 people.

Second one is, Scandinavian furniture major IKEA's proposal to invest 1.5bn euro in India.

Both offers a ray of hope in this dry atmosphere, where we are experiencing declining capital inflows and stagnated manufacturing output. IKEA's big investment proposal was indeed a surprise, even though we cleared 100% FDI some time back in single brand retail.

IKEA's investment is not without strings. The big hurdle to resolve in this case is the policy of 30% mandatory sourcing from India. According to the IKEA's announcement, company is looking for 30% mandatory sourcing from India after a cumulative period of 10 years from the date of approval. This is against one of the major policy related to FDI in single brand retail. Will government dilute the policy for this big ticket investment or will it stick with the existing policy is yet to see.

Daimler's plant is indeed ray of hope. The good thing is it will add to India's manufacturing capacity and may be able to provide a solution for large scale commercial transportation in India.

What we need to do is creating a more investment friendly atmosphere and transparent policy guidelines. Hope that, this good news will give the necessary momentum for going forward.


Photo Courtesy: Daimler India

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