Govt says Apple has to apply again for local sourcing waiver for India stores

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New Delhi: Apple Inc. will have to reapply under new rules announced on Monday if it wants a waiver from the stipulation that mandates single-brand foreign retailers to source 30% of the content of their products from India, commerce minister Nirmala Sitharaman said.

The government liberalized foreign investment rules across sectors, but tightened norms for entities claiming to bring state-of-the-art and cutting-edge technology in single brand retailing, limiting the relaxation in local sourcing norms to a maximum of eight years.

Now such entities will get a waiver only for three years and a relaxed sourcing regime for another five years. Hitherto, there has been no time limit for exemption from local sourcing norms for these entities.

This means entities like Apple will now have to take a call on whether they want to seek a waiver under the new norms. Apple did not get a waiver on local sourcing on its previous application.

On the positive side, the new rules offer an element of certainty on the local sourcing norms for such entities paving the way for them to set up stores in India, although clarity remains elusive on what constitutes ‘state of the art’ and ‘cutting edge’ technology.

“Local sourcing had a very noble objective. We cannot forget that. We need to protect small industries,” Sitharaman said, defending the decision to tighten local sourcing norms for single brand retail.

When asked whether Apple Inc will have to apply afresh, she said: “With this policy coming out now, I would presume, obviously (they will have to)”.

Other applicants such as Chinese mobile companies LeEco and Xiaomi, who had sought a waiver of the sourcing norm, too will have to apply again.

Atul Jain, chief operating officer, Smart Electronics Business, LeEco, said it is a positive development and will encourage firms to start opening company-owned stores at the earliest.

“The three years relaxation rule followed by the extension period is enough time to be able to get our own sourcing in place here. We are looking at two models of manufacturing either semi-knocked down or greenfield and are still to decide on which way to go,” said Jain whose company had applied for FDI in single brand retail in the second week of April and will reapply again if necessary. The company plans to open 500 stores in the next one year.

Sitharaman said detailed rules that will follow Monday’s announcement will seek to clearly define what constitutes state-of-the-art technology and other such terms. “We concede that these definitions have to be simplified. The subsequent rules that will be notified will ensure that clarity will emerge (on these terms),” she said.

Apple’s application for a waiver was not cleared by the foreign investment promotion board, after objections from the finance ministry. The ministry asked the department of industrial policy and promotion (DIPP), which supported Apple’s application for a waiver, to clearly define what constitutes cutting-edge technology, Mint reported last month.

“We will communicate the changes in the policy to them. They will get a chance to indicate their preference under the new policy,” said Ramesh Abhishek, secretary, DIPP, adding the government is still discussing how to define “cutting edge.”

Kalpesh Maroo, Partner, BMR & Associates LLP, said the government appears to have tightened the sourcing norms for single brand retail in products claiming to be state-of-the-art.

“While the language is not too clear, it appears that the entities engaged in trading of such products would now need to comply with the sourcing norms over a period of 8 years (3 plus 5) as against an earlier norm where the government had the option to completely waive the sourcing norms for such entities,” he said in a note. “If this is indeed the case, this move would adversely impact the fate of several companies especially in the technology space, that were hoping for a complete waiver on the grounds that the products proposed to be sold involved state of the art technology,” he added.