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Union Budget: Sourcing leeway to benefit Apple

Apple could soon be able to open its stores in the country

By R. Suryamurthy in New Delhi

  • Published 6.07.19, 11:20 AM
  • Updated 6.07.19, 11:20 AM
Rule fillip for Apple
Rule fillip for Apple (Shutterstock)

I-phone maker Apple could soon be able to open its stores in the country with the budget proposing to relax the local sourcing condition in single-brand retail trade and providing an opportunity for the country to resolve the trade differences with the US.

“Local sourcing norms will be eased for FDI in the single-brand retail sector,” finance minister Nirmala Sitharaman said in her budget speech.

Cupertino-based Apple Inc may finally breathe a sigh of relief as it can now move forward with its long awaited plans to open up its branded stores in the country.

The government mandates that single brand companies opting for more than 51 per cent foreign investment must source 30 per cent of their products locally. In 2015, the government acknowledged it is not possible for “certain high-technology segments” to comply with the 30 per cent mandatory local sourcing.

“To provide opportunity to such single-brand entities, it has been decided that in the case of ‘state-of-art’ and ‘cutting-edge technology,’ sourcing norms can be relaxed subject to government approval,” according to an official notification at that time.

However, the definition of “cutting-edge technology” proved to be an ambiguous subject and dragged Apple’s application for three years.

Anil Talreja, partner at Deloitte India, said the impact will largely depend on the exact details of the relaxation on sourcing. “Many of these companies were sitting on the border in a dilemma to invest or not in the Indian market on account of the difficulty in meeting these sourcing conditions. These companies will certainly have to relook at their strategy to tap the large Indian consumption potential. It would now be a race for all these retail companies to evaluate the conditions and take a quick decision to invest in India.”

This proposal is likely to be good news for single-brand retailers such as Ikea, H&M. More brands may join the queue if the relaxations are significant.

“Global FDI flows slid by 13 per cent in 2018 to $1.3 trillion from $1.5 trillion, according to the world investment report. India’s inflows remained strong at $64.37 billion, marking a 6 per cent growth over the previous year. I propose to further consolidate the gains in order to make India a more attractive FDI destination,” the finance minister said.

Paresh Parekh, partner and national tax leader, consumer products and retail, EY India, said, “There was a lot of reluctance on the part of existing foreign joint venture players in the sector to increase FDI beyond 51 per cent to avoid coping with the sourcing norms and also reluctance shown by new foreign brands to enter the sector owing to the sourcing norms.”