Changes to India FDI policy open doors for Apple
Mon 20 Jun 2016
Policymakers in India have radically changed the country’s restrictive Foreign Direct Investment (FDI) policies to invite business investment from around the globe. A three-year easement of the requirement that retailers in India be 30% Indian-owned has been approved, with a possible five-year extension. This opens the enormous Indian market to foreign retailers such as Apple and Ikea, who view India as the next major market for global expansion.
The new policy for single brand retail automatically exempts Apple, and any other brand, from the local sourcing norms for three years, and if the brand qualifies for a ‘cutting-edge technology’ classification it may be exempt for an additional five years. The reforms also affect airlines and defense companies, which may now be 100% foreign-owned, up from 74% for airlines and 49% for defense companies. Mobile TV and cable networks may also be up to 100% foreign-owned under the revised policy.
Prime Minister Narendra Modi applauded the change on Twitter, saying that this move “makes India the most open economy in the world for FDI” and that the changes would be a “major impetus to employment and job creation in India.”
In January, Apple submitted an application to the government to build its own retail establishments in India rather than sell products through third-party retailers. They had hoped to be exempted from the 30% local ownership requirement with a ‘cutting-edge technology’ exemption; and while the application passed the first round of approvals it was eventually denied by the FIPB who upheld the local sourcing norms. With a three-year release from this policy, and a potential five-year extension to it, Apple now has the green light to move forward with installing their iconic single-brand stores in India.
In the first quarter of 2016, sales of Apple products in India were up 76%, by far the greatest increase in sales of Apple products worldwide. In their Q1 earnings call, Apple CEO Tim Cook said that the company was interested in long-term investments in India. “India is incredibly exciting. It is one of the fastest growing economies, and is also the third largest smartphone market in the world, after China and US. In India, the median age for the population is 27, in China that’s nearly 36 years. I see the demographics there being incredibly great for a consumer brand, and for people that really want the best product,” Cook said. He also, somewhat prophetically, said that while Apple faced currency issues that affected their pricing in India, “we believe the government is in interested in economic reforms.”