The Foreign Investment Promotion Board (FIPB) recently allowed Apple to set up retail stores in India. However, the US-based company’s request to waive off mandatory local sourcing norms was rejected.
The decision made by the FIPB comes as a surprise inasmuch the Department of Industrial Policy and Promotion (DIPP) had green signalled the proposal in April.
Background
Setting up of retail stores by foreign entities in India is governed by the Foreign Direct Investment (FDI) Policy. FDI may be made in India either under the automatic route or approval route. The FIPB is the nodal agency for clearing proposals under the approval route.
The retail sector in India is mainly divided into two categories:
Revamping FDI Policy
The Government had for the first time in 2006, allowed 51% FDI in Single Brand Retail Trading (SBRT) under the approval route. The SBRT was further liberalised in (i) January 2012, when the Government permitted 100% FDI in SBRT under the approval route; and (ii) August 2013, when FDI in SBRT was allowed up to 49% under the automatic route, and beyond 49% under the approval route.
The Consolidated FDI Policy 2015 continued this practice and allowed 100% FDI in SBRT allowing 49% under the automatic route and beyond 49% under approval route.
As per the policy, several conditions were imposed for FDI in such entities located in India. One of these conditions required the investor to ensure that 30% of the value of goods purchased, will be done from India.
The ’15 reform
The DIPP, in November 2015 made some progressive changes to the FDI Policy, in furtherance of its attempt to attract foreign investment and facilitate ease of doing business in India.
By the way of a Press Note, the DIPP permitted SBRT entity to undertake retail trading through e-commerce, provided the entity operates through brick and mortar store.
Further, the Press Note also allowed Government to relax sourcing norms for entities undertaking SBRT of products having ‘state-of-art’ and ‘cutting-edge’ technology and where local sourcing is not possible.
Apple Applies
Following this, Apple submitted a proposal to the DIPP in January 2016 seeking exemption from the local sourcing norms. However, owing to certain gaps in the application submitted by Apple, DIPP rejected the proposal.
Thereafter, in March, Apple re-submitted its proposal to the DIPP.
In April, a committee headed by Secretary of DIPP, Ramesh Abhishek and consisting of a member from NITI Aayog, officer from DEITY and an unnamed DIPP official recommended that the government exempts Apple from the 30% sourcing norms.
The official also said that during consultations it was also discussed that allowing some relaxation to Apple could also help the company bring its product prices down.
As a matter of procedure, following DIPP’s approval, the proposal was forwarded to the FIPB. The FIPB, however, not satisfied with the proposal, declined the request made by Apple for exemption from local sourcing norms.
But Apple hasn’t lost hope, not just yet.
Commerce Minister Nirmala Sitharaman has told she will try to convince the finance ministry to reconsider Apple’s case for sourcing norms exemption.
While this is the first case in relation to sourcing norms exemptions, the larger issue pertains to the lack of clarity on what constitutes ‘cutting edge’ and ‘state of the art’. In the absence of any guidelines, each case will be judged on merits.
For this reason, the FIPB has written to DIPP asking for some broad guidelines for examination of request seeking waiver of 30% mandatory sourcing from India if they sold cutting-edge tech products under single-brand stores.
