“Norm of 30% for branded tech production makes little sense. Glad this govt realises this,” tweeted Amitabh Kant, the chief executive of NITI Ayog, following news that the government has allowed Apple to set up its own retail stores without having to comply with the 30% minimum local sourcing requirement.
Kant is not the only one relieved. Other companies have followed in Apple’s footsteps to apply for the waiver. Interesting, two of them, just like Apple, are cellphone makers — Chinese companies Xiaomi and Le Eco. According to government sources, both are likely to be exempted from minimum sourcing norm.
The argument in favour of retaining the local sourcing norm is growing weaker by the day, experts said.
“The idea to have local sourcing norm in the policy itself was to ensure that global majors come and create jobs and let the Indian SME (small and medium-sized enterprise) sector grow further and not just take away the revenues by entering the Indian markets. Such a clause actually makes them impart skills, technology and help the SMEs grow in the country. But the dilution in the clause over the years is defeating this argument,” said a past DIPP secretary who was key in the policy formation for single-brand retail, who did not wish to be quoted.
Global players, including IKEA, H&M, have been talking to the government to bring further changes in the local sourcing norm.
Interestingly, the mandatory local sourcing norms in the foreign direct investment (FDI) policy for allowing global majors to set up shops under the single-brand retail format has undergone several changes over the years and has been diluted.
First, the government replaced the word “mandatory” with “preferably” and later on created a caveat, saying, companies, which bring “cutting edge and state-of the-art technology” to the country can open single-brand outlets without 30% compulsory sourcing of materials, subject to government approval.
The panel comprises the secretary of the DIPP, member of the NITI Aayog and representative of the administrative ministries, including telecom and information technology.
The government allowed 100% FDI in single-brand retail in January 2012. Up to 49% FDI is allowed through the automatic route and above that with the approval of the Foreign Investment Promotion Board. Beyond 51% FDI, it is required that 30% of the value of goods be sourced from India, preferably from micro, small and medium enterprises, village and cottage industries, artisans and craftsmen.
Already, IKEA has presented their point of view to DIPP seeking a further relaxation in the policy, and recently Swedish apparel brand H&M to approached the government and has been asked to make a presentation, detailing its overall sourcing from India for the global market after the company raised concerns over the sourcing norm for single-brand retail.