Why is India making it easier for foreign companies to open up shop?

The country has become a technological center in Asia, and loosening its regulations should help the industry grow even more rapidly, analysts say.

Stephen Lam/Reuters/File
People wait in line for the opening of the next generation of iPhone at an Apple Store in San Francisco.

India announced new rules for foreign retailers on Monday, loosening a past requirement that foreign investors must locally source 30 percent of the goods sold in their Indian stores.

The rules were meant to protect Indian manufacturers and producers, but relaxing the rules will enable technology giants such as Apple to open their doors and even begin manufacturing in India, which will create millions of jobs and help bring India into the 21st century, something Prime Minister Narendra Modi has discussed extensively.

"In this digital age, we have an opportunity to transform the lives of people in ways that were hard to imagine just a couple of decades ago," said Mr. Modi in a September speech to about 500 technology leaders, including the chief executives of Microsoft, Google, Adobe, and Uber, in San Jose, Calif., reported The New York Times

The government also announced that foreign investors are now allowed to own up to 100 percent of domestic airlines, raising the limit from 49 percent, The Wall Street Journal reports. The relaxing of regulations for foreign firms comes a year after India and the United States reached a cooperative agreement about renewable energy. At that time, President Obama worried about the foreign investment exemption, also called the "Make in India law."

According to The Hindu Times, "India [maintained] that U.S. subsidies on solar products threaten Indian manufacturers, and the domestic solar industry has accused the U.S. of 'dumping cheap outdated technology' on India."

US officials responded that India should not focus on making technology in India, but on taking technology if it wants to keep developing at a fast pace. Earlier this month, the Christian Science Monitor's Ben Rosen reported:

India is already an emerging global technology hub. With investments from Amazon, Google, and Apple, Hyderabad will only contribute to India’s startup scene centered in Bengaluru. During a December visit, Google chief executive officer Sundar Pichai announced a program to train 2 million developers in the country, for which it will partner with 30 universities across India. The Indian-born CEO also shared plans to expand free WiFi in 100 railway stations and a rural internet program for women from pilot to full-scale program to cover three lakh villages in three years, The Hindu Times reported.”

With this new law, Apple will be able to tap into the Indian smartphone market, which is expected to grow at a compound rate of 23 percent annually through 2018 and will soon become the second-largest smartphone market in the world after the United States.

Apple has historically had low iPhone sales in India. The company sold 2 million in 2015, which, according to Counterpoint Research, gives Apple only 2 percent of the country's overall market. Neil Shah, director of Counterpoint Research, told CNET the problem is that prices are too high for many potential buyers in the nation.

Establishing itself as a retailer in India would increase Apple's brand presence and enable Apple to sell its phones directly to its customers. Specifically, selling refurbished phones would help the company tap into the lower-budget market. With this move, analysts say, Apple will be able to establish itself in India while the market is growing quickly as sales for the iPhone stagnate in the US and China. But India's ultimate goal is to see Apple products made locally.

In May, Apple announced it will open up a development center in the southern city Hyderabad, a major center for the technology industry, that will focus on the tech giant's Maps app and create up to 4,000 jobs, according to the company. That same week, Apple announced it will be opening an iOS design and development accelerator in Bengaluru, another Indian tech hub.

"The talent here in the local area is incredible and we are looking forward to expanding our relationships and introducing more universities and partners to our platforms as we scale our operations," Tim Cook, chief executive officer of Apple, said, according to CNET.

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