[The moves are the latest steps taken by the government to open India’s economy up to outside companies. Foreign investment in the country reached $60 billion in the fiscal year that ended March 31, up 8 percent from the previous year. In a statement, the government said the changes would contribute to “growth of investment, income and employment.”]
By
Vindu Goel and Suhasini Raj
 |
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An
ad for Apple’s iPad on a store in New Delhi, India. The Indian government said
Wednesday
it was easing rules that have made it
difficult for single-brand foreign companies from
opening
stores in the country. Credit Tsering Topgyal/Associated Press
|
MUMBAI,
India — India’s central
government moved on Wednesday to reinvigorate its sluggish economy by relaxing
rules governing foreign investment in industries including retailing and air
travel.
The changes could lead Apple and other
companies based outside this country of 1.2 billion to significantly expand
their retail presence here. In addition to the changes in the retail sector,
the government also said it would allow up to 49 percent of Air India, the
troubled national air carrier that is now up for sale, to be bought by foreign
airlines.
The moves are the latest steps taken by the
government to open India’s economy up to outside companies. Foreign investment
in the country reached $60 billion in the fiscal year that ended March 31, up 8
percent from the previous year. In a statement, the government said the changes
would contribute to “growth of investment, income and employment.”
Among the potential beneficiaries of the
changes is Apple, which has long sought to open stores in India. The company’s
iPhones account for only about 1 in 20 smartphones in active use in the
country, according to the research firm Forrester, and Apple phones are now
sold only by third-party vendors.
Apple and other multinational retailers had
lobbied the government for several years to ease a requirement that
foreign-owned, single-brand retailers obtain 30 percent of the value of
products sold in India from suppliers in the country.
Apple executives argued that the 30-percent
figure was impossible to meet, at least in the short term, because the company
assembles almost all of its products in China and buys many of the necessary
components there. Although the company’s supply chain stretches across the
world, Apple told the Indian government that the country’s electronics industry
could not produce the quality and quantity of parts needed. (Even Indian
cellphone makers assemble their phones from imported parts.) Apple’s position
rankled many officials.
The new rules could break the stalemate. They
allow single-brand retailers that are entirely foreign-owned to temporarily
meet the 30 percent requirement by buying goods made in India and then selling
them overseas. If, for instance, Apple sold $100 million of its products in
India, it could meet the target by buying $30 million of India-made leather
cases and selling them outside the country. After five years, the existing
local-sourcing requirement for sales in India would apply.
In addition, foreign-owned single-line
retailers would no longer have to seek government approval before opening.
“These rules are a very dramatic relief,”
said Sudhir Kapadia, a partner at EY India, an affiliate of the accounting and
consulting firm formerly known as Ernst & Young.
Apple declined to comment on the change. The
company has scouted out potential locations for its first stores in India, and
its chief executive, Timothy D. Cook, reiterated to investors in November that
opening stores in the country was an important piece of its strategy here,
where inexpensive Android handsets now dominate.
Single-brand shoe or clothing companies like
Uniqlo could also find India a more appealing place to operate stores, perhaps
buying some products here to sell overseas and others to sell locally, said
Ankur Bisen, senior vice president of retail at Technopak, a consulting firm
based in New Delhi.
Ikea, the Swedish furniture retailer, has
spent five and half years trying to open in India. Part of the challenge has
been finding the right Indian suppliers of furniture and other household items
to meet the 30-percent requirement for local goods. The new rules give the
company more flexibility toward meeting the goal.
Foreign brands like Kenneth Cole, Marks &
Spencer and Tesco that already operate in India through joint ventures with
local companies may now find wholly owned units to be a better option, Mr.
Bisen said.
Opening the Indian economy up to foreign
companies remains a politically delicate proposition, particularly since
employment is a major issue among voters.
The Confederation of All India Traders said
that relaxing the restrictions on single-brand retailers would make it too easy
for multinationals to enter India.
“What will happen to my people who will be
losing their jobs?” said Bal Krishna Bhartia, national president of the group,
which represents 70 million traders. “These corporates will not hire them.”
Vindu Goel reported from Mumbai and Suhasini
Raj from New Delhi.
Follow Vindu Goel and Suhasini Raj on
Twitter: @vindugoel and @suhasiniraj
