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Relaxed local sourcing rule allows Apple to open retail stores in India

The Indian government's local sourcing rule has been relaxed for three years for foreign companies engaged in single brand retail trading.

In a big relief to Apple, the Indian government has relaxed its local sourcing norms for three years, which can be extended by five more years, enabling the world's leading iPhone maker to open its retail stores across the country.

In an official release on Monday, the Prime Minister's Office said: "It has now been decided to relax local sourcing norms up to three years and a relaxed sourcing regime for another five years for entities undertaking single brand retail trading of products having 'state-of-art' and 'cutting edge' technology".

The decision is part of the government's announcements amending the Foreign Direct Investment policy, aimed at liberalising and simplifying procedures so as to provide ease of doing business in the country, and leading to larger FDI inflows contributing to growth of investment, incomes, and employment. "With these changes, India is now the most open economy in the world for FDI," the release added.

"We will inform Apple about the relaxation of the local sourcing norms so that the company can avail the concessions," Ramesh Abhishek, Secretary in the Department of Industrial Policy and Promotion, told reporters in the evening.

The decision comes after Apple CEO Tim Cook, during his first ever visit to India last month, met Prime Minister Narendra Modi and reportedly requested exemption from the government's 30 percent local-sourcing rule for his company. Indian Minister for Commerce and Industry Nirmala Sitharaman later said she would discuss Apple's request to waiver the rule with her Cabinet colleague and Finance Minister Arun Jaitley.

Though her ministry was in favour of relaxing the rules, the Foreign Investment Promotion Board (FIPB) in the finance ministry opposed the same on the plea that it would impact the government's "Make in India" program, which was launched to encourage local industries.

"Our main focus is on creating more jobs and ensuring that India becomes a manufacturing hub and there is a need to encourage foreign investments," the minister said.

Besides Apple, Chinese mobile companies such as LeEco and Xiaomi also sought a waiver and will have to re-apply for the government to consider their applications.

The government's decision comes a couple of days after China banned the company from selling its latest models iPhone 6 and iPhone 6 Plus for allegedly violating the design patents of a Chinese device maker in Beijing.

According to the Beijing Intellectual Property office, the two models infringed on Shenzhen Baili's patent rights because of their similarities to the latter's 100C phone. The ban will be in Beijing only but Apple can challenge the decision and sell its products till the case is disposed of.

However, the government's decision raised many an eyebrow within the electronics industry and its leaders expressed fears that it would hit the local companies.

Speaking to ZDNet, Electronic Industries Association of India Vice President Pankaj Gulati said that the government ought to have relaxed the norms for a period of one year and asked the foreign companies like Apple to start procuring 10 percent of the material locally in the second year and 20 percent from the third year onward.

Gulati said that these foreign firms should have been asked to bring into the country their ancilliary units which can generate employment in the country. While the US, Germany and other industrialised countries can take such decisions as they are well developed, a nation like India should not take them.

"Apple will bring all ingredients from China instead of setting up its manufacturing unit in the country and our forex will now go to China," he added.