Apple can still get exemption from local sourcing norms

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New Delhi | Updated: May 26, 2016 8:29:14 AM

The finance ministry’s rejection of an application by Apple, seeking waiver of local sourcing norms so that it can set up its own retail outlets, may not be the end of the road for the American tech giant in India.

AppleApple 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 smart phones next year.

The finance ministry’s rejection of an application by Apple, seeking waiver of local sourcing norms so that it can set up its own retail outlets, may not be the end of the road for the American tech giant in India.

The company can still seek exemption if it believes it has a strong case, with additional material to support its claim, sources told FE. However, any fresh review or the approval process will now take some time, as the department of industrial policy and promotion (DIPP) will have to first put in place a more robust mechanism to assess the “cutting edge” nature of a company’s technology and come up with a proper definition of what truly is “cutting-edge” to avoid accusations of favouritism in future, a source said.

The latest setback for Apple can also potentially delay a decision on the applications by Chinese mobile companies
Xiaomi and LeEco, which have sought exemption from the mandatory 30% local sourcing norm under the foreign direct investment (FDI) regime.

In case of Apple, the absence of a manufacturing unit in India, and the lack of firm commitments by it to start manufacturing in the country any time soon despite its chief executive Tim Cook’s visit last week, have only added to the discomfiture of the government, another source said.

“Any company can claim its technology is cutting-edge. So, unless a comprehensive framework is developed to clearly assess the genuineness of a claim, the objectives of the government’s ‘Make in India’ scheme will also receive a setback,” he said.

Currently, a panel comprising DIPP secretary Ramesh Abhishek, a NITI Aayog member and a member of the administrative department (the department of electronics and information technology, in case of Apple) assesses whether an applicant’s technology is truly “cutting edge” and submits its recommendation with the finance ministry for approval.

Last month, the committee recommended that Apple’s technology was fit to be called “cutting-edge technology”, which meant it could be exempted from the local sourcing rule. DIPP secretary Ramesh Abhishek wasn’t immediately available for comments.

Currently, 100% FDI is allowed in single-brand retailing, although foreign retailers are mandated to obtain the FIPB approval if the FDI limit exceeds 49%.

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 smart phones next year.

India’s smartphone market is expected to grow a compounded annual growth rate of 23% through 2018 and the country would make up for 30% of the global growth during the period. By 2018, India will grow nearly five times faster than the world’s largest smartphone market China, where growth has decelerated, the report added.

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