India to Require Apple to Use Local Sourcing

By Rajesh Roy and Newley Purnell 

NEW DELHI -- India's finance ministry has rejected a government panel recommendation to exempt Apple Inc. from local sourcing requirements, two government officials said, a decision that could effectively block the tech giant's plan to open its own retail stores in the country.

"We are sticking to the old policy," said one of the officials, who didn't want to be identified. "We want local sourcing for job creation. You can't have a situation where people view India only as a market. Let them start doing some manufacturing here."

An Apple spokeswoman didn't immediately respond to a request for comment.

India is a crucial market for Apple as it holds huge sales potential. Like China, which for years fueled the Cupertino, Calif., company's growth, India is a large, developing economy in which more people can afford its high-end gadgets every year.

India wants to use the company's interest in its market to attract investment and create the manufacturing facilities and jobs the country needs to sustain long-term growth.

Apple's sales have been growing in India without much investment. Its revenue in the South Asian nation was up 56% in the first quarter compared to a year earlier. But the company still has less than a 3% share of the country's smartphone market, leaving ample room to expand its footprint in the world's second-most populous nation.

Having its own stores would help boost awareness of Apple's brand in the country, where it faces stiff competition from low-cost smartphones, analysts say. Apple currently sells its products in India through a network of Indian-owned distribution companies and retailers.

Apple Chief Executive Tim Cook last week met with Indian Prime Minister Narendra Modi in New Delhi, and the pair spoke about manufacturing and retailing in the country, according to a government statement. Mr. Cook also met with Bollywood stars, visited a Hindu Temple and took in a cricket match.

India requires single-brand retailers that are more than 51% foreign owned to buy at least 30% of their manufacturing materials from Indian vendors, preferably from small and medium-size enterprises, but there are not many high-end phone part makers in India to buy from to meet the requirement.

However, the government is allowed to waive the requirement if the retailers are bringing "state-of-the-art" and "cutting-edge" technologies to India which aren't available locally. To assess whether a company qualifies for such an exemption, New Delhi set up a panel of bureaucrats to scrutinize proposals.

Last month, the panel recommended waiving the local sourcing rule for Apple, but the Foreign Investment Promotion Board -- a panel of bureaucrats that gives the final go-ahead to foreign-investment proposals -- as well as Finance Minister Arun Jaitley have disagreed, the officials said.

"There is some difference of opinion on whether Apple's technology is cutting edge," the official said.

Write to Rajesh Roy at [e-mail] and Newley Purnell at newley.purnell @wsj.com

(END) Dow Jones Newswires

May 26, 2016 11:27 ET (15:27 GMT)

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