After further opening up the Indian economy on Monday by easing regulations for manufacturing units and retail stores, the government claimed that India is currently the most open country in the world for investment. This is not entirely accurate. Just ask Apple.
The Cupertino-based tech giant is going through a slightly rough patch with its latest iPhones, which aren’t selling as much as they used to. The company is eyeing India as a big untapped opportunity, with its market share currently in the low single digits. Apple wants to set up stores and even sell refurbished phones to lower the price point for cost-conscious consumers – but the Indian government refused to play ball. Until now.
New Foreign Direct Investment rules announced on Monday removed the requirement that international manufacturers should source 30% of their material locally before investing in a country. Now, international companies will get a three-year window to figure out local sourcing and those with “cutting-edge” and “state of the art” products will get a further five year-breather.
This is good news for Apple, which has earlier said that it is impossible for it to source materials from India immediately. With the relaxation of the norms, it only needs to convince Indian authorities that its iPhones are indeed “‘cutting edge".
But that may not be a slam dunk.
Just last month, Apple failed to convince the government to give it a waiver from the 30% local-sourcing norm for having cutting-edge technology. The Finance Ministry sent back Apple's proposal for a waiver, while asking the Department of Industrial Policy and Promotion to first define "cutting edge".
An official quoted by Mint said that a waiver couldn’t be given to just Apple alone without stated guidelines in place.
“There is nothing to show that Apple’s technology is cutting edge”, the official said. “There are other companies also in the queue. It could create controversy if we waived the norms for only one without stated guidelines.”
What is cutting edge?
The policy has now been officially relaxed, making it likely that manufacturers like Apple will be able to set up their own retail stores. But the question remains: What counts as cutting edge?
Observers have for some time questioned whether the company is still leading innovation as it used to. Its most recent gamble to appeal to developing markets through the iPhone SE fell flat on its face, and sales for that latest iPhones have been disappointing.
Market watchers and analysts feel that Apple's innovative capabilities are under strain.
“What’s going to make us want to abandon what’s already there and go to the next curve? That’s the big test for Apple,” Guy Kawasaki, Apple’s former Chief Evangelist told CNBC. He added that the company needs to innovate quickly in order to remain ahead of the curve instead of just making devices smaller and fitter.
Added to that is the problem of governmental discretion. How will someone in the Indian government decide what is cutting edge, and more importantly what's not?
“A policy maker can’t make these decisions when the products come from a very technical domain like smartphones,” said Radhika Pandey, a professor at the National Institute of Public Finance and Policy. "Such a policy will only lead to further confusion and could even increase lobbying by Chief Executives to get a go-ahead."
Tarun Pathak, an analyst with research firm Counterpoint, said that the "cutting-edge" policy waive should ideally work as a nudge to Indian manufacturers, encouraging them to cater to companies like Apple.
“I believe the definition still stands vague,” Pathak said. "It can be seen as an extension for few years with assumption of local manufacturing ecosystem being robust enough by that time for full scale manufacturing for brands including Apple."
There are others who argue that the government is erring in trying to dictate what “cutting edge” means to companies like Apple. A recent piece in Mint by Leslie D’ Monte noted that most smartphones today carry out complex functions that couldn’t be imagined half a decade ago and that the government should let the sector breathe.
“When the government finally decides whether or not Apple should get a waiver from the domestic sourcing rule, it may find it hard to define cutting-edge unless it wants iPhones to also fly besides making calls,” the piece said.
Leaving it to the government to decide will allow some firms to be privileged over others. Is Apple's high-end technology more "cutting edge" than the sort of low-priced innovation that a company like Xiaomi offers?
“If you are opening up a sector, you should do it without such restrictions otherwise it is just going to leave things in the grey area where there will be a large scope of cherry-picking," Pandey said.
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