Apple could get 3-year window to meet sourcing norms for setting up own store

THE finance ministry is mulling an option of giving Apple three years to comply with the mandatory 30% local sourcing rule to set up its own single-brand retail stores in India, sources told FE.

Though a final decision is yet to be taken on this issue, in a letter to the commerce and industry ministry, the finance ministry is understood to have suggested this option for Apple to “test the market” by setting up stores, develop network for local sourcing and set up a manufacturing facility.

Though a panel headed by department of industrial policy and promotion (DIPP) secretary Ramesh Abhishek recommended that local sourcing norms be waived for Apple on the ground it uses “cutting edge” technology, the finance ministry had rejected the idea of waiver in the last week of May. It had also asked the DIPP to define what “cutting edge technology” meant.

The finance ministry has conveyed that it is not desirable to give absolute relaxation to Apple as meeting the sourcing norm would result in job creation in India, the sources said. Finance minister Arun Jaitley too has endorsed this view. “The question boils down to, what do we gain by giving entire access to the Indian market?” an official said.

Already, Chinese smartphone maker Xiaomi, which had also sought an exemption from the mandatory sourcing norms to set up its own retail outlets here, has said it doesn’t need the waiver any more and will meet the norms.

The Times of India on Tuesday reported that Apple could get the breather on the sourcing requirement, as the government tries to work out an arrangement under which the California-based company will agree to local purchases once it gets a stronger toehold in the country.

Commerce and industry minister Nirmala Sitharaman said last week that her ministry would hold talks with the finance ministry to arrive at a final decision.

Sources had earlier told FE the fact that Apple didn’ t have a manufacturing unit in India, and the lack of firm commitments by it to start manufacturing in the country anytime soon despite its chief executive Tim Cook’s visit last month added to the discomfiture of the finance ministry.

While both ministries will meet and discuss the issue, officials acknowledge that the final outcome is likely to be that reasonable time be given to Apple to meet the sourcing condition.

Currently, 100% FDI is allowed in single-brand retailing, although foreign retailers are mandated to obtain the approval of the Foreign Investment Promotion Board if the foreign direct investment limit exceeds 49%.

In November last year, the government exempted foreign retailers selling “state of the art” or “cutting edge technology” from the sourcing rule, which states that at least 30% of the value of the goods sold in a shop must be made in India.

Apple has turned to India to reverse slowing global sales. According to a Morgan Stanley report in April, India is expected to beat the US to become the second largest market for smartphones next year.