On January 10, 2018, the Union Cabinet approved key changes in India’s foreign direct investment (FDI) policy by reducing the investment restrictions across sectors such as aviation, construction and single brand retails among others. This potentially means that international tech brands such as Apple, Tesla and others might have a better chance of opening up their retails stores in India. This is because the policy now allows 100% FDI under automatic route instead of the previous 49% limit. Companies could acquire the rest of the 51% share before this policy change happened, but that required getting approval from the Indian government, which would take a very long time.
It has been almost a decade since Apple started selling its products in India, but it still doesn’t have any of its own official stores and has to sell via third-party retailers or online. Other companies such as Xiaomi collaborated with local partners to open up their Mi Home stores in India, but companies might not have to go this route now. Under the changed policy, companies can fully own their Indian operations without having to apply for permission. But this only applies to businesses that fall under the single-brand retail category. Single brand-retail companies are those that sell all of their products under one label. Multi-brand retail chains such as Walmart still have a 51% FDI cap.
However, the 100% FDI via the automatic route might not be enough to bring over Apple Stores to India because of another significant hurdle India has in place. This is the 30% domestic sourcing clause, which mandates foreign companies to source at least 30% of their product locally. This means Apple would have to source 30% of its manufacturing out of India. There is a silver lining as there has been some leeway granted by the Indian government on allowing companies up to 5 years to establish their manufacturing under the 30% domestic sourcing clause. Also under these relaxed norms, “a foreign retailer will be able to get credit from incremental increase in sourcing for its global operations from India towards the mandatory 30% local sourcing requirement for its business in the country.”
After the end of the 5 year period, all single-brand entities would have to annually meet the 30% sourcing norms directly towards its Indian operations. This is a great deal of concern because Apple has almost all of its manufacturing based out of China. According to Tarun Pathak, Associate Director of Counterpoint Research, “It [100 percent FDI] can open stores and drive the overall experience for Apple‘s products, but the only thing that can stand in the way of growth is manufacturing. Apple can open stores, but unless and until they start manufacturing in India, the price of the products will remain high. If you can‘t control the pricing, that will be a big worry area.”