Budget 2019: FM eases sourcing local norms, opens doors to Apple Stores

Aiming to attract big players, single-brand retail firms may be permitted to open online stores before setting up brick-and-mortar shops if they bring in over $200 mn FDI

Finance Minister Nirmala Sitharaman’s maiden budget speech may turn out to be the best thing that has happened to Apple in recent years in the country. As the FM announces a proposed relaxation on the stringent local sourcing norms for single brand retail scheme, the American technology giant may finally breathe a sigh of relief.

Apple Inc. – the Cupertino-headquartered company – can now move forward with its long-awaited plan to open up its branded Apple Stores in the country.

First opened in 2001 by maverick Steve Jobs in Tysons, Virginia – the stores, over the years, have turned into a brand statement for Apple that attracts its patrons and fans alike across the globe – especially when a new product is launched. It is estimated that stores generate, on an average, five times the sales of Apple products compared to unbranded stores. According to estimates by New York-based research firm eMarketer, Apple stores generates sales worth US$ 5,546 (Rs 388,000) per square-foot of store area – higher than any other type of branded retail outlet.

The maker of iPhone and MacBook has been caught in the web of red tapes in India for years. While, its business has grown in the country over the past five years, it was unable to launch its flagship branded stores due to a norm that required at least 30 percent of a single brand retail firm’s products to be sourced locally. Lack of enough local value addition and absence of its sourcing partners here, Apple couldn’t meet the criteria till now.

While it has been lobbying to the government for a relaxation for quite some time, this could turn out to be the red letter day.

According to sources, post recent representations by industry players, including come of Apple’s partners, the government began seriously considering a new proposal earlier this year. After failing to secure sops for retailing and manufacturing its products in India over the past two years, US-based tech giant Apple decided that further discussions with the government on the issue would be left to Taiwanese original equipment manufacturers (OEMs) such as Wistron and Foxcon.

With a view to attract big players such as iPhone maker Apple, as per the proposal, single-brand retail firms may be permitted to open online stores before setting up brick-and-mortar shops if they bring in over $200 million foreign direct investment (FDI).

According to DIPP norms, 100 per cent foreign direct investment (FDI) is allowed in single-brand retail as long as the retailer sources goods worth 30 per cent of the total value locally. This rule can, however, be relaxed for companies which bring “cutting edge” technology to India, subject to government approval. A panel, comprising the DIPP secretary, a member of the NITI Aayog and representatives from the Department of Electronics and Information Technology, can give exemptions on a case-to-case basis. This panel had last month exempted Apple from the sourcing norms.

However, the FIPB, led by Economic Affairs Secretary Shaktikanta Das, suggested that proper guidelines be laid down by DIPP to define what comprises “cutting edge” technology, remaining unconvinced of Apple’s plea.

In 2018, Apple remained a super-premium brand, and saw its sales dip heavily in the country due to its costlier new handsets. Data from Counterpoint Research shows, Apple’s market share halved in the year to 1.2 per cent from 2.4 per cent in 2017. It shipped 1.7 million iPhones in 2018, compared to 3.2 million in 2017.

The firm’s heavy dependence on imports led it to hike prices twice last year as the Indian government increased customs duty on fully-finished handsets and several key components.