Apple may not get local sourcing rule relaxation to open retail store in India: Report

By May 26th, 2016 AT 3:38 PM

Apple’s plan to open entirely owned retail stores in India seems to hit a roadblock due to the local sourcing rules of the country. The company may not be able to seek a relaxation under the mandatory local sourcing rule applicable for foreign direct investment in single-brand retail. The foreign companies selling products in India must purchase 30% of their components from local businesses, if they wish to open up retail stores. Apple, however, makes almost all of its products in China.

Apple Logo

“There was not enough material on record to justify providing Apple the relaxation for local sourcing norms. They (Apple) had to provide enough material on record to justify the relaxation, which they couldn’t,” an official from the Foreign Investment Promotion Board (FIPB) told the Indian Express.

Also, Apple has sought for the waiver stating that its products are of “cutting-edge technology”. The Ministry now asks the Department of Industrial Policy and Promotion to define the term.

There are other companies such as Xiaomi and LeEco who applied for the similar exemption from local sourcing norms. Department of Industrial Policy and Promotion has appointed a three-member panel to scrutinize the applications and the panel has actually recommended that Apple is exempted from the sourcing guidelines after analyzing the company’s presentation. FIPB questions this recommendation and has asked the DIPP to explain the term. The three-member panel consisted of a member of the NITI Aayog and a representative from the Department of Electronics and Information Technology.

“There are many companies involved in producing smartphones and tablets, which may ask for similar approval, but that cannot be done. iPad might have been termed cutting edge 7-8 years ago, but the same can’t be said now,” the official was quoted saying. “There is nothing to show that Apple’s technology is cutting edge. The DIPP has been asked to come out with a clear-cut guideline defining ‘cutting edge’ and ‘state-of-the-art’ technology for which such a waiver can be given. There are other companies also in the queue. It could create controversy if we waived the norms for only one without stated guidelines,” he added further.

There is a rush for the foreign companies to open retail stores in India after the government announced a 100% foreign direct investment in single-brand retail trading. However, in case, if the investment is more than 49%, FIPB wing of the Ministry of Finance should approve it. The proposal will be initially examined by the DIPP and later forwarded to FIPB for approval. “All single-brand retail FDI proposals have been cleared by the same process over last one year,” the official cited above said.

Recently, Apple’s chief executive officer Tim Cook visited India and met Prime Minister Narendra Modi. He gave an interview to NDTV expressing the company’s anticipation to stay in India for another 1000 years. Apple’s iPhone sales have grown 56% year-over-year in the country during the January-March quarter, although its sales fell 16% globally. Currently, Apple sells its products through distributors such as Redington and Ingram Micro.

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