Apple CEO Tim Cook’s visit to India last month had proponents of lesser restrictions on FDI in retail holding their fingers crossed. To no avail. The Finance Ministry ruled out, unequivocally, any exemptions to Apple Inc from the 30% local sourcing norms that would enable it to launch its single brand retail stores in the country. But what is the regulation that has so many foreign firms clamouring for exemptions and why was it imposed? Read on…
What is the 30% local sourcing norm?
According to current Foreign Direct Investment rules, proposals involving FDI beyond 51 per cent in single-brand retailing require the sourcing of 30 per cent of the value of goods from India, preferably from MSMEs, village and cottage industries, artisans and craftsmen, in all sectors
How does this regulation have to be met?
The quantum of domestic sourcing will be self-certified by the company and checked periodically by statutory auditors
The requirement will have to be met, at first, as an average of five years’ total value of the goods purchased, beginning April 1 of the year during which the first tranche of FDI is received
It would have to be met on an annual basis thereafter
Why is the norm in place?
The local sourcing norm has been in place since the government allowed 100% FDI in single-brand retail in January 2012. The objective of the norm is that foreign firms will, by mandatorily sourcing resources locally, boost small and medium enterprises and enhance skillsets of local manpower
Dilutions of the rule
The government replaced the word “mandatory” with “preferably” in 2015 in the clause requiring companies to source from local MSMEs, artisans and craftsmen, village and cottage industries
A caveat has been created that states that companies that bring in “cutting edge and state-of the-art technology” can open single-brand outlets without 30% local sourcing
Currently,the average local value addition in assembling of mobile handsets in India by foreign players is less than 10%
Who has contested the norm and applied for exemptions?
Apple Inc
Filed for exemption under “cutting edge tech” route
LeEco
Applied in April 2016 ahead of new launches
Xiaomi
Followed Apple in “cutting edge tech” route to exemption
IKEA
Lobbying since 2012 for exemption, unsuccessfully
H&M
Has been facing the sourcing norm hurdle since as early as 2012
What has the government done?
While a government panel recommended exemption for Apple, the Finance Ministry refused its inclusion under “cutting edge tech”
Consequences…
The denial of exemption to Apple saw a withdrawal of Xiaomi’s exemption application. Others however have not reacted on their positions yet
Supporters for sourcing norm exemptions
Amitabh Kant, NITI Aayog Chief Executive
Has stated that linking retail and manufacturing in a globalised supply chains is unrealistic. “Norm of 30% for branded tech production makes little sense….” he had tweeted
Nirmala Sitharaman, Commerce Minister
The Minister had thrown her support behind Apple’s applications after the Finance Ministry rejected its proposal, stating that her Ministry will try to take the issue forward again