December 15, 2018

India Extends Hand to Apple and Others by Easing Rules on Foreign Firms

Apple executives argued that the 30-percent figure was impossible to meet, at least in the short term, because the company assembles almost all of its products in China and buys many of the necessary components there. Although the company’s supply chain stretches across the world, Apple told the Indian government that the country’s electronics industry could not produce the quality and quantity of parts needed. (Even Indian cellphone makers assemble their phones from imported parts.) Apple’s position rankled many officials.

The new rules could break the stalemate. They allow single-brand retailers that are entirely foreign-owned to temporarily meet the 30 percent requirement by buying goods made in India and then selling them overseas. If, for instance, Apple sold $100 million of its products in India, it could meet the target by buying $30 million of India-made leather cases and selling them outside the country. After five years, the existing local-sourcing requirement for sales in India would apply.

In addition, foreign-owned single-line retailers would no longer have to seek government approval before opening.

“These rules are a very dramatic relief,” said Sudhir Kapadia, a partner at EY India, an affiliate of the accounting and consulting firm formerly known as Ernst Young.

Apple declined to comment on the change. The company has scouted out potential locations for its first stores in India, and its chief executive, Timothy D. Cook, reiterated to investors in November that opening stores in the country was an important piece of its strategy here, where inexpensive Android handsets now dominate.

Single-brand shoe or clothing companies like Uniqlo could also find India a more appealing place to operate stores, perhaps buying some products here to sell overseas and others to sell locally, said Ankur Bisen, senior vice president of retail at Technopak, a consulting firm based in New Delhi.

Ikea, the Swedish furniture retailer, has spent five and half years trying to open in India. Part of the challenge has been finding the right Indian suppliers of furniture and other household items to meet the 30-percent requirement for local goods. The new rules give the company more flexibility toward meeting the goal.


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Foreign brands like Kenneth Cole, Marks Spencer and Tesco that already operate in India through joint ventures with local companies may now find wholly owned units to be a better option, Mr. Bisen said.

Opening the Indian economy up to foreign companies remains a politically delicate proposition, particularly since employment is a major issue among voters.

The Confederation of All India Traders said that relaxing the restrictions on single-brand retailers would make it too easy for multinationals to enter India.

“What will happen to my people who will be losing their jobs?” said Bal Krishna Bhartia, national president of the group, which represents 70 million traders. “These corporates will not hire them.”

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