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June 20 — The Indian government relaxed foreign investment norms in single-brand retail sector that will now allow the likes of Apple Inc. to enter the country.
India now will ask Apple to indicate whether the company would like to open operations in India, an official with Ministry of Commerce and Industry told a news conference after the government announced several foreign-investment changes.
Under the new provisions, a foreign single-brand retailer won't have to adhere to the sourcing norms for the first three years of entering India. This relaxation could be extended for up to five years if a company can prove that it products are “state-of-art” and “cutting edge technology,” the government said in an official release.
The Department of Industrial Policy and Promotion is the lead agency to formulate India’s foreign investment policy.
Before this change, foreign single-brand retailers planning to invest beyond the mandatory 51 percent had to purchase 30 percent of the value of goods from domestic suppliers. That requirement posed a major hurdle for foreign retailers.
“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 news release from the Prime Minister’s office said.
The decision to relax this requirement comes a month after Apple chief Tim Cook’s visit to India. Cook had informed Prime Minister Narendra Modi of its intention to open stores across India even as he sought exemption from the stiff sourcing norms (110 ITD, 6/8/16).
However, while the Ministry of Commerce and Industry had already given its nod to Apple, the proposal was delayed in the Ministry of Finance.
Meanwhile, the government still seems to debating whether to relax foreign investment norms in the electronic commerce sector, something that has irked Amazon.
Following Modi’s visit to the U.S. in early June, where Amazon Chief Executive Officer Jeff Bezos committed to invest $3 billion in India, two key Indian ministries have fought over policy and regulatory issues (111 ITD, 6/9/16).
The Ministry of Commerce and Industry, in an effort to attract the likes of Amazon to the country, is planning to “tweak” the norms in the e-retail segment. But the Ministry of Finance is “not yet ready with the changes proposed by Commerce Ministry,” a government official told Bloomberg BNA on condition of anonymity.
The final decision to amend the foreign direct investment (FDI) policy in e-commerce rests with the Finance Ministry. However, it is the Commerce Ministry that formulates the policy.
Amazon had been pushing to enter the Indian e-retail market for more than five years. When Bezos met Modi on the sidelines of the an event organized by the U.S.-India Business Council, he lobbied Modi to permit a hybrid model of e-commerce, one that is both inventory-led and one that uses a marketplace model, the official said.
The marketplace model allows Amazon to sell only goods offered through its website by third parties. However, Amazon primarily wanted India to allow foreign investment in inventory-based model of e-commerce. Currently, India doesn't allow foreign direct investment in companies that stock inventory and sell directly to customers, and Amazon wants that changed.
Amazon already has invested $2 billion in India.
Another official, involved in the policy-making process, said India will allow the hybrid model of e-commerce once the next session of the Parliament is over, which is scheduled to take place from July 22.
“The issue with India is that it still does not allow inventory-based model. Amazon is not able to make much profit in India because it is allowed to operate in marketplace. Amazon is in bind now,” a senior official of the Business Council said on condition of anonymity.
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