BHADOHI, India—Swedish retailer IKEA wants to sell its flat-pack dining tables, cotton dish towels and Scandinavian-sounding sofas to India’s blossoming middle class. Under Indian law, roughly one-third of those items must be made locally, and that is proving a formidable obstacle.

IKEA has scoured the country for new products that meet its standards and come up nearly empty-handed. Laminated table tops from Indian suppliers contained unsafe levels of formaldehyde and steel dinner plates leached chemicals into food, company scouts found.

When IKEA helped set up a carpet factory seven years ago in the northeastern district of Bhadohi, it found most rugs from the area were knotted at home—often with the help of children—and women weren’t permitted to work outside. Workers had to be taught how to use a bank account, in addition to taking workshops on carpet weaving. Last year, only 3% of IKEA’s global inventory came from India.

For global companies banking on India to pick up the slack left by a slowing Chinese economy, IKEA’s struggle is a sobering reminder of the limitations of that idea. Foreign manufacturers have long complained about red tape and poor quality. Now retailers, including Wal-Mart Stores Inc., and French hypermarket chain Carrefour SA, who had once bet on an emerging new class of wealthy Indians, have dropped their plans to open supermarkets in the country.

“It hasn’t been easy,” said Sandeep Sanan, IKEA’s new business head tasked with ramping up production in India. “Change is a slow and painful process—and cannot happen overnight.”