Endorsing UPA’s single-brand-retail policy a bad idea
Continuity in policy is a great thing, except when the policy itself is mindless. While not being able to get it changed in Parliament is the reason why the NDA has persisted with the UPA’s disastrous land acquisition law, this cannot be the reason for staying with the UPA’s FDI in single-brand retail policy which allows majority control to foreign firms only if they agree to a 30% local-sourcing clause. Despite seeming to make a break from it by talking of carving out an exception for hi-tech industries, the government is back to insisting it will allow Apple to set up its own stores only if it does 30% local sourcing. Senior BJP leaders have defended the policy privately on grounds it leads to local employment. It would, however, be interesting to know just what the government thinks Apple can source locally given the quality and/or pricing of most Indian manufactures versus those from a China or a Vietnam. Developing local sourcing is critical, but can take decades to develop quality suppliers, especially for firms that, like Apple, have very high standards for quality. Suzuki, it is true, offers a product that is largely indigenised, but that is after three decades of being in India—imagine the consequences if India had turned it away on local-sourcing grounds. In the case of the telecom sector, where the government routinely lays down village-phone norms, it has been the growth of the rural market that has encouraged telcos to penetrate these markets, not the targets themselves—indeed, till the market developed, telcos were content to simply pay fines for not achieving targets or simply doing technical rollouts.
And though it is not a quid pro quo, surely Apple planning to set up a 4,000-strong centre in Hyderabad is employment being generated, and pretty high-quality employment at that? Indeed, even if Apple does not end up doing more sourcing for its company-owned stores, once it starts working in India via its Hyderabad centre, chances are that like other tech MNCs, it too will employ a lot more people over a period of time. If, on the other hand, the political leadership of prime minister Narendra Modi and finance minister Arun Jaitley is going to let the bureaucratic process take over, chances are this will only discourage Apple from taking a bitter bite of what India has to offer. A good way to look at how mindless the UPA’s policy was is to examine what happens now that Apple has been denied permission to set up shop here. Apple phones will continue to be sold through franchisees and distributors, though those buying the phones will probably not get top quality after sales services and/or full product guarantees/warranties. If consumers don’t find this good enough, they will dump Apple products and go in for Chinese imports. While neither process is adding to local sourcing in any way, if the finance minister was to use countervailing duties as imaginatively as he did for mobile phones two years ago and extend this to printed circuit boards used in the manufacture of phones, there would be more local value addition and jobs. It is unfortunate that a government which came to power on the promise of being different should choose to follow UPA policies that make little sense. Because-Sonia-said-so can hardly be the justification for a policy.