Local Sourcing Norms Relaxed, Flood Gates Open for Apple, LeEco & Xiaomi!
In order to increase job opportunities in India and provide employment to its denizens, the Government has made radical changes in FDI policies in various sectors. This is the second major step taken after the one in November 2015, to improve certain pain points for large multinationals to do business in India. Infact, these might be the biggest business reforms to happen in the country since the new Modi Government took over!
One of the most important and talked about change in FDI policy is the relaxation of 30% local sourcing norms in India, which the Government has thought upon and come to a compromise. Apple, LeEco and Xiaomi can rejoice, as they will be able open their own stores in India, if they agree to comply with the Government’s guidelines.
Local sourcing norm relaxation
It looks like the Government is keen to retain foreign companies that bring in a lot of jobs and investment. One of the biggest changes in FDI policy has to be relaxation of local sourcing norms, earlier fixed at 30% in the meeting in November 2015.
With the exemption of local sourcing, companies like Apple, LeEco and Xiaomi will be able to open single brand retail stores in India. Apple’s tussle is finally coming to a good end and the Government has sought a compromise here.
According to the new policy, “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.”
It remains a mystery as to how the Government will define ‘state-of-art’ technology for companies looking to open their own stores in India, but a three-year delay to start local sourcing seems fair enough for foreign brands. This way local technology and manufacturing is not burdened much and at the same time it does not hamper its growth.
Other highlights from the revised policy document
According to the Government, most of the sectors are now under automatic approval route, except a few.
- 100% FDI in trading, including e-commerce, in case of food products manufactured or produced in India. This is to promote production and manufacturing of food products and thereby promotion in India
- 49% FDI in defense sector under automatic approval route; more than 49% would require Government’s approval under case-to-case basis
- 100% FDI in greenfield pharma under automatic approval and beyond 74% FDI in brownfield pharma pertaining to Government’s approval
- All Civil Aviation project would 100% FDI waiver and do not require Government approval in brownfield projects either
- Private security agencies were not allowed FDI over 49%. In the new policy, agencies can request Government approval beyond 49% and below 74%.
- FDI in Animal Husbandry (including breeding of dogs), Pisciculture, Aquaculture and Apiculture is allowed 100% under automatic route
Impact of the new FDI policies
Apart from the fact that you will see just Apple branded stores, and not resellers, will give a big boost to the job situation in India. Even if for just three years, the company will try to look into alternative to manufacture its components in India to lower the prices and make more margins.
The restrictions in investments have also been reduced to allow more automatic approvals instead of involving the Government in every case, except when the organisation needs to prove its cutting edge technology. This makes India one of the most open economies in the world, as it eases the investment process.
Can the opening up of economy have an opposite effect on India? Possibly not, and this might prove to be a major stimulus for Indian economy to multiply in the next few years.