India Eases Investment Rules, Aiding Apple and Other Foreign Retailers
Posted January 10, 2018 8:37 p.m. EST
MUMBAI, India — India’s central government moved on Wednesday to reinvigorate its sluggish economy by relaxing rules governing foreign investment in industries including retailing and air travel.
The changes could lead Apple and other companies based outside this country of 1.2 billion to significantly expand their retail presence here. In addition to the changes in the retail sector, the government also said it would allow up to 49 percent of Air India, the troubled national air carrier that is now up for sale, to be bought by foreign airlines.
The moves are the latest steps taken by the government to open India’s economy up to outside companies. Foreign investment in the country reached $60 billion in the fiscal year that ended March 31, up 8 percent from the previous year. In a statement, the government said the changes would contribute to “growth of investment, income and employment.”
Among the potential beneficiaries of the changes is Apple, which has long sought to open stores in India. The company’s iPhones account for only about 1 in 20 smartphones in active use in the country, according to the research firm Forrester, and Apple phones are now sold only by third-party vendors.
Apple and other multinational retailers had lobbied the government for several years to ease a requirement that foreign-owned, single-brand retailers obtain 30 percent of the value of products sold in India from suppliers in the country.
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 5 1/2 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.
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, 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.”