India food market
Ikea plans to invest $2bn in India's retail sector REUTERS

Swedish furniture retailer Ikea has received recommendation from India's foreign investment agency to open outlets in the country, which has recently opened up its retail sector for foreign investment.

Being the first single-brand foreign company to open stores in the country, Ikea plans to open as many as 25 stores with an investment of about $2bn (£1.3bn, €1.5bn) over the next 15 to 20 years. The amount would be the largest committed by a foreign company in India since it allowed 100 percent foreign ownership in single-brand retail stores.

India's Foreign Investment Promotion Board (FIPB) would forward the proposal to the Cabinet Committee on Economic Affairs, which is widely expected to approve the plan.

"The government is committed to play a constructive role in encouraging foreign direct investment especially in areas which create jobs and provide technological advancement," Trade Minister Anand Sharma said.

Ikea's entry into India comes as the government is trying to boost the economy by liberalising investment rules for foreigners.

In 2012, India changed its policies to allow more foreign direct investment in its $500bn retail sector. The new laws provides for 100 percent foreign investment in single-brand retail stores and up to 51 percent foreign investment in supermarkets. This would allow global retailers such as Wal-Mart, Carrefour and Tesco to expand in the country.

In connection with the policy change, industry body Associated Chambers of Commerce and Industry of India and Yes Bank projected that India's retail sector will double to $874bn in 2017.

Nevertheless, the move did not receive much interest from foreign retailers due to the legal and political hurdles in the country.

Ikea's earlier proposal in November was approved by the FIPB, but it was restricted to selling furniture and not products it does not brand, including food and beverages, textiles, books and office supplies.

Being unhappy with the requirements, Ikea resubmitted the proposal and the latest approval allows the retailer to go ahead with the model it uses in other countries. IKEA and its franchisees operate 338 stores in 40 countries. Majority of the retailer's revenue comes from Europe.

Retailers such as Wal-Mart of the US have been keen to start operations in India, but the government is yet to receive any concrete proposals for supermarkets.