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    Budget 2019: India to ease local sourcing norms for single brand retail, Apple benefits

    Synopsis

    India’s plans to ease local sourcing rules in single brand retail are set to help Apple the most among other cos.

    apple
    India’s plans to ease local sourcing rules in single brand retail are set to help Apple the most among other foreign companies such as OnePlus and Oppo wanting to open their own stores in India, said analysts and sector watchers.

    The move is aimed at attracting higher foreign investment at a time when global foreign direct investment (FDI) flows have slowed but those coming into India have been robust.

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    “Global FDI flows slid by 13% in 2018 to $1.3 trillion from $1.5 trillion, as per the world investment report... India’s inflows remained strong at $64.37 billion marking a 6% growth over previous year. I propose to further consolidate the gains in order to make India a more attractive FDI destination,” Finance minister Nirmala Sitharaman Friday said while announcing the Union Budget 2019.

    “Local sourcing norms will be eased for FDI in single brand retail sector,” she added.
    Analysts and industry insiders lauded the decision as it would come to aid of Apple Inc, whose plans to opens its own outlets in India have been hanging fire for three years. Apple didn't offer an immediate comment.

    "Apple should be celebrating this. If anything, this makes is easier for them to ramp up their timelines for an India store," said Rushabh Doshi, research manager at Singapore-based research firm Canalys told ET. An Apple store in time for the launch of the next iPhone will create a positive hype and will boost overall sales further, he added.

    “The relaxation of mandatory 30% local sourcing norm will spur the growth of the Indian economy, and will potentially help in attracting large players in the single-brand retail sector, including the likes of Apple,” said Prabhu Ram, head of intelligence group at Cybermedia Research.

    Over the long-term, this move will contribute to an attitudinal shift in domestic home-grown manufacturers, resulting in enhanced efficiencies and increased competitiveness, he added.

    India mandates that single brand companies opting for more than 51% foreign investment must source 30% of their products locally.

    In 2015, the government acknowledged it is not possible for “certain high-technology segments” to comply with the 30% mandatory local sourcing.

    “To provide opportunity to such single brand entities, it has been decided that in case of ‘state-of-art’ and ‘cutting-edge technology,’ sourcing norms can be relaxed subject to government approval," according to an official notification at that time.

    However, definition of “cutting-edge technology” proved to be an ambiguous subject and dragged Apple’s application for three years.

    Chinese smartphone maker Xiaomi, however, said that the move may not make much difference to their operations as the company was already making 99% of its handsets locally and had therefore begun selling in India through its own and operated stores.

    “It is a good move by the government to promote more investments. However, as PCBA, battery, chargers and cables locally sourced - nearly 65% of the value of a Xiaomi smartphone is locally sourced - the new regulations does not impact Xiaomi as much,” a Xiaomi spokesperson said, adding that the company’s Mi TVs and power banks were also locally made.

    The company added that one of its component suppliers Holitech Technology had invested over $ 200 million USD spanning three years for manufacturing Compact Camera Modules (CCM), Capacitive Touch Screen module (CTP), Thin Film Transistor (TFT), Flexible Printed Circuits (FPC), and fingerprint module locally.

    Industry body Indian Cellular and Electronics Association also approved of the government's plan on the grounds that foreign investment would not in anyway upset the equilibrium of the organic retail.

    "By it’s core character single brand retail promotes the brand, enhances retailing standards, keeps the sanctity of price which does not exert predatory pressure on our small retailers intact it grows the market by creating additional demand for small retailers where value conscious customers fall back on," said Pankaj Mohindroo, chairman of ICEA that represents handset makers including Apple and others.
    The Economic Times

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