30% sourcing condition waived for Apple stores

New Delhi: Apple Inc. is just a step away from winning the final go-ahead for opening its own branded stores in India after a government panel on Wednesday waived a condition requiring single-brand retailers to source 30% of content locally.

The committee approved Apple’s proposal to open a chain of stores in the country, waiving the 30% condition because of the cutting-edge technology the maker of iPhones and iPads would bring.

Finance minister Arun Jaitley has to sign off on the decision for Apple to go ahead with the proposal.

In November, the government relaxed the single-brand foreign direct investment (FDI) policy with sourcing exemptions for companies bringing in what it called “state of the art and cutting-edge” technology.

For other companies such as Swedish furniture chain Ikea, sourcing 30% of the content of their products from small and medium enterprises in India is mandatory.

The government committee, which comprised Ramesh Abhishek, secretary, department of industrial policy and promotion (DIPP); a NITI Aayog member and an officer from the Department of Electronics and Information Technology approved the proposal, a DIPP official said.

“Now, the proposal has been sent to the finance ministry. A final approval of the government will be issued after approval from the finance minister,” the official said on condition of anonymity.

The official said two more Chinese mobile companies, LeEco and Xiaomi, had also sought a waiver of the 30% sourcing norm, adding that their applications were being considered by the committee headed by the DIPP secretary.

The government’s FDI policy for the retail sector is irrational and it is now trying to find a way out without changing the policy, said Arvind Singhal, chairman of consulting firm Technopak.

“It is not feasible for all companies to source 30% from India. Anyway, Apple products could be legally shipped to India and sold by the franchise stores. Why should Apple not be allowed to sell its own products through the automatic route? Why should the government be worried who owns the retail stores?” he asked.

Apple currently has Apple-owned retail stores across the world, including the US, the UK, Germany, France, China and Japan. The company sells its products in India through exclusive reselling arrangements with chains such as Imagine and iStore (owned by Reliance Digital).

The development comes at a time when Apple’s quarterly profit fell by 22.5%, primarily due to a decline in iPhone sales, the first since the product was launched in 2007.

Apple’s sales in India provided the only bright spot, as the company reported its first quarterly revenue drop in 13 years. Apple CEO Tim Cook revealed in a Tuesday earnings call that the company grew in India by 56% from a year earlier.

Apple’s keenness to enter the Indian market shows the increased importance of India for the company, where its sales crossed the $1 billion mark for the first time in the last fiscal, according to results filed with the Registrar of Companies.

In 2012, Apple India changed its sales model by appointing retail distributors and began advertising campaigns. Since then, its sales have been rising at double-digit pace and the top management of Apple has acknowledged the importance of Indian operations on analyst calls several times.

Apple has a minuscule market share of under 2% in India’s smartphone market as compared with rival Samsung Electronics Corp., the largest smartphone maker in India, closely followed by India’s home-grown brand Micromax Informatics Ltd.

Impressed by its growth pace in India, Apple has been pushing to open its own retail outlets. It also plans to launch a handful of new “store-in-store” mini-shops in outlets run by Croma, an electronics outfit owned by Tata group. The government is also keen to have the likes of Apple setting up manufacturing bases in India. During his US visit in September-end, Prime Minister Narendra Modi met Cook and invited him to set up manufacturing facilities in India.

The DIPP official said the department had sent a cabinet note for allowing 100% FDI in marketing of food products.

DIPP has proposed to do away with stiff conditions stipulated by the previous United Progressive Alliance (UPA) government for FDI in multi-brand retail. The UPA government had prescribed that such stores could be opened only in cities with a minimum population of one million and after the approval of state governments.

The government, however, is expected to allow all food and grocery items to be sold in such stores except tobacco and liquor.