Apple thanks Indian government for relaxing local sourcing norms

The move will benefit the US-based premium smartphone maker, facing challenging times in the Indian smartphone market amid stiff competition from Chinese companies.

“We love our customers in India and we’re eager to serve them online and in-stores with the same experience and care that Apple customers around the world enjoy. We appreciate the support and hard work by Prime Minister (Narendra) Modi and his team to make this possible and we look forward to one day welcoming customers to India’s first Apple retail store. It will take us sometime to get our plans underway and we’ll have more to announce at a future date," Apple said in an e-mail to Mint.

Apple has about 1.2% market share in terms of shipments in India where it sells its phones through an estimated 140 retail stores.

The FDI policy currently requires 30% of the value of goods to be procured from India if the SBRT entity has FDI exceeding 51%. Further, as regards the local sourcing requirement, the same can be met as an average during the first five years, and thereafter annually towards the India operations. Companies, however, often reiterated that it was difficult for them to procure goods from India to meet the 30% condition.

On Wednesday, the government announced that all procurement made from India by the SBRT entity for that single-brand shall be counted towards local sourcing, irrespective of whether the goods procured are sold in India or exported.

Further, the current cap of considering exports for five years is proposed to be removed. This will allow companies to now include not just locally sold goods but also exports as part of its sourcing. Brands applying for FDI in single-brand retail will also be allowed to commence online retail operations before they open physical stores in a clear indication that the government is closely watching how consumers in India are shifting to online shopping. However, a physical store will need to be opened within two years.

“This is being done to position India as a favourable destination (for foreign brands), that they can make here, sell here and export as well," said Navkendar Singh, associate research director, International Data Corp (IDC).

Singh said the step will allow Apple open “destination stores" in major cities in India and it may get an upper hand in terms of retail, especially because Apple Stores worldwide are known for their experience and the knowledge of its staff.

“Since the average has to pass 30%, brands can go about local procurement gradually," says Faisal Kawoosa, founder of techARC. “This helps a brand like Apple." He also said selling and exporting from India might help the company drive up overall volumes here as well.

IDC’s Singh said that a combination of manufacturing and price drops like it did with the iPhone XR this year, could do good for Apple’s volumes.

Apple has been in talks with officials in India to open its own stores in the world’s fastest-growing smartphone market for quite some time. Local manufacturing would help the Cupertino, California-based company avoid import duties of 20%, and further grow its market share and India revenue.

According to a Bloomberg report, Apple’s main partner—the Foxconn Technology Group—is running quality tests for the iPhone XR series and plans to begin mass production at a facility in southern India.