The way this protectionism works is that a foreign owned (there are various limits to the size of foreign shareholding for example) retailer may only be a single brand retailer. Multibrand retailers must be (at least majority) Indian owned. Thus Amazon in India operates more like e-Bay than Amazon, offering a platform and shop fronts to independents rather than directly fulfilling orders itself. Rather obviating the vast efficiencies which Amazon is capable of. This should not worry Apple of course but there's a further restriction on single brand retailers: the local content rule. This can be waived and Apple has asked that it be so. The answer is looking like no at least so far:
The government will soon take a call on the proposal that Apple be allowed to set up single brand retail stores in the country. There is a requirement for 30 percent local sourcing but Apple had given a presentation to the Department of Industrial Policy and Promotion (DIPP) suggesting that it be exempted as "cutting edge technology". However, a new report says that a government official has confirmed this is going to be turned down.
This is of course just the word from within the system, this isn't the formal announcement:
After the government relaxed the mandatory sourcing norms in November, Apple had applied for exemption on grounds that it was introducing “state-of-the-art” and “cutting-edge technology” to the country. However, on insistence of the finance ministry, the Department of Industrial Policy and Promotion (DIPP) was asked to review the same. The DIPP found that there was “nothing to show that Apple’s technology is cutting edge” revealing that Apple may have once again hit a roadblock when it comes to opening its Apple Stores in India.
That's an interesting view of course. The iPhone is still under a decade old and I would say that it's still pretty cutting edge. However, that's not the correct economic point we should be considering here:
The government allows 100% FDI in the segment but companies are required to seek approval if overseas holding exceeds 49%. "There is no evidence before us to reveal that the products are cutting-edge or high-technology. Apple can open single-brand retail stores but has to meet the sourcing requirements," said a source, who did not wish to be identified.
As we all know Apple manufactures almost exclusively in China meaning that at the basic level there's not really an opportunity for local sourcing. We could all think of ways around it, sure. The gross margin on a iPhone is over that 30% level meaning that if Apple reported its profits in India then that would meet, from one viewpoint, the required level. But that's unlikely to be something that would satisfy the bureaucracy if we're honest about it. In time things might change: there are those stories of Foxconn opening factories in the future and Apple could assemble locally in those. But there's a problem there, which is that the assembly of the imported components is a trivial part of the costs. Last we saw it's something like $10 of value added per phone for said assembly. And India simply isn't manufacturing the chips or the screens which make up the major component costs.
Cook is trying to capitalize on growth prospects for India, where a billion new smartphones are projected to be sold in the next five years as consumers increase their incomes and adopt new technologies. Apple trails
Samsung Electronics Co. and Micromax Informatics Ltd. in the India market now, in part because its products are relatively expensive.
Obviously Cook would like to find a way through this maze. However, we're not here to talk about business strategies: rather, what should economic policy be? And the answer is that these retrictions should simply be done away with. For as both Adam Smith and Frederic Bastiat have told us we must always look at these questions from the point of view of consumption. Our aim in having an economy is to make consumers better off. It is not to make producers richer, to protect them, not to please the bureaucracy nor to make the politicians look good. The sole and only guiding light is the question "Does this make consumers better off?".
And the answer to that, would Apple Stores in India make Indian consumers better off, obviously has to be yes. Everyone agrees that it would. True, they might not actually be saying it but they all mean it. Apple does, they think that people will buy iKit from iStores: revealed preference that consumers will be made better off. The people denying them permission also think consumers will be made better off. Obviously so, they wouldn't be banning the idea if they didn't think that if allowed consumers would turn up to buy: again, revealed preferences that the consumers will be made better off.
Thus our answer here is truly simple: yes, of course Apple Stores should be allowed in India. Just as Walmart, Amazon and all the rest should be allowed in to offer retail services in absolutely any manner they desire to. On the very simple grounds that allowing this will make consumers better off. Given that making consumers better off is the very aim of our having an economy, therefore economic policy should be to make consumers better off. Or, tear down that trade wall as Ronald Reagan didn't quite say.
