The cental government has announced relaxations in the norms for foreign retailers as far as local sourcing of components is concerned. This is particularly significant for companies in the electronics products retailers where if the Foreign Direct Investment (FDI). The Department for Promotion of Industry and Internal Trade, DPIIT, has now issued a notification to allow these firms to buy their requirements from units located with the special economic zones (SEZs) to fulfil the 30% norm.
It is expected that companies like Apple and Xiaomi will be immediately benefitted from this relaxation in the norms.
The government allows 100% FDI in single brand retail. But this permission comes with a rider that if the FDI in the venture is above 51% the brand has to source at least 30% of the products it retails here from suppliers within India. Apple gets many of its iPhones manufactured by established contract manufacturing firms like Foxconn. Luckily for Apple, Foxconn has units located within SEZs and this will mean Apple can easily be in compliance on the local sourcing requirement.
Apple had issued a statement only recently that it wants to setup its Apple Stores in India. Apple Stores sell all Apple products under one roof and with the 30% norm the company was finding it difficult to open its store here. Apple’s other source, Wistron too, has a unit inside a SEZ.
Foxconn supplies mobile phones to the other brands like Xiaomi and OPPO also.
The present clarification by DPIIT comes as a relief since there was some ambiguity in so far as the procurements from SEZ units were concerned.
Some relaxations were made last year itself in this space. One was that foreign firms exporting their products out of India could factor in their purchases from the SEZ-located sources for qualifying for the 30% local sourcing norm. The other is that the stipulation that foreign brands wanting to sell their products online had to first open offline stores before going online. This too has been relaxed.
The concept of special economic zones or SEZs has always had its critics from the very beginning. The present government may again revisit the policy and come out with something that is simpler and workable.