Eased rules to let Apple make in India

Ikea, H&M, Marks & Spencer, Zara can sell online; no word yet on e-commerce FDI

The biggest obstacle for international technology brands such as Apple and Sony for setting up fully-owned stores in India has been removed. The Union government on Tuesday relaxed the mandatory condition linked to single brand retail on 30 per cent sourcing from India.

Niche tech brands for whom it is not possible to source from Indian manufacturers, the condition has been eased, subject to the government approval. This is "to provide opportunity'' to cutting-edge companies.

Companies such as Apple have been operating in India through franchise, as they could not comply with sourcing norms. During Prime Minister Narendra Modi's recent US visit, he had invited Apple CEO Tim Cook to manufacture in India. Foxconn, which is the largest manufacturer of Apple products, is keen to start manufacturing in the country.

For companies other than tech brands too, conditions on mandatory sourcing have been revised to help make the business feasible for foreign players. The current policy mandates that sourcing of 30 per cent of the value of goods purchased would be reckoned from the date of receipt of foreign direct investment (FDI). It has now been decided that sourcing requirement will kick off from the opening of the first store, a press note issued by the Department of Industrial Policy and Promotion, said.

Also, foreign single-brand chains, including Ikea, Zara, H&M, GAP and Marks & Spencer, can now sell their products online, while operating stores in India. In a significant opening up of the retail sector, the government said any entity permitted to have single brand stores in the country under the foreign direct investment (FDI) route can now undertake e-commerce activities. The change comes four years after the FDI cap in single brand retail was raised to 100 per cent from 51 per cent earlier.

Swedish furniture chain Ikea, which has been seeking changes in the single brand retail policy, said "to start counting the time to comply with the 30 per cent local sourcing norm from store opening will support brands in building long term sustainable supply chains that are good for India, good for the businesses and will enable better prices to the Indian customers". Allowing the e-commerce channel of sales is a salute to today's modern consumers who expect their favourite brands to be available whenever and wherever they want, according to Ikea India spokesperson.

The FDI rulebook change, ahead of the PM's UK visit, would help Marks & Spencer, a popular brand in Britain. "We welcome the decision on FDI policy taken by the government. This would help us grow our business and move towards omni-channel sales in the country," said Venu Nair, managing director at Marks & Spencer India told Business Standard.

The company, however, has not set a timeline for starting its e-commerce portal, and had recently announced that its products would be available on Flipkart.

While the new FDI press note is silent on FDI in e-commerce companies such as Flipkart, Amazon and Snapdeal, it talks about permitting those engaged in cash and carry or wholesale business to open single brand stores. That, experts said, was out of sync with retail trade. Major cash-and-carry players operating in India such as Metro and Walmart are multi-brand companies and, therefore, would not start single-brand outlets. There are some stray cases of single-brand retail players in the wholesale business such as France's sport goods manufacturer Decathlon.

There was no mention of multi-brand retail policy either in Tuesday's announcements.

Arvind Singhal, founder, Technopak, a retail consultancy, said allowing single brand companies to operate online might not bring in more FDI into the country, but that it is a step forward. However, he questioned the merit of a policy, which discriminated between an Ikea and an Apple in terms of sourcing conditions.

Mohit Bahl, partner-retail practice at consulting firm KPMG India, said the sourcing norm relaxation was a big positive and would provide impetus to companies like Apple to set up flagship stores in India. However, he said it was unclear whether all single brand retail companies would be permitted to operate e-commerce portals or only those with 100 per cent FDI.

SALES PITCH

• International single brand retail chains can start 30% sourcing from Indian manufacturers from the time they open their first store
• International mobile phone and high-tech electronics companies are now not bound by 30% sourcing clause, subject to government approval
• Global single-brand retailers such as Ikea, Zara, H&M can now sell on the e-commerce platform