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Latest Apple Story Shows How Far India Still Needs To Deregulate

This article is more than 8 years old.

This little story does rather amuse. It shows that the Indian government has gotten part of the way to understanding that the Licence Raj needs to be abolished. But not quite all the way to understanding quite how to do that. The background is that there are restrictions on who may own and run retail stores in India. This is protectionism of the worst kind, of course, protectionism of the people who currently own and run India's notably chaotic and grossly inefficient retail sector. But there it is, in any democratic polity, there are going to be problems in removing inefficiencies, precisely because some number of people are going to be making their livings through such inefficiencies. Roughly speaking the limitation is that a company may run its own retail stores to sell its own goods. But a foreigner or foreign corporation cannot own retail outlets that sell the goods of many different manufacturers or suppliers. This applies online as well as to brick and mortar stores.

So, Apple thinks it would like to run its own retail stores in India. Should be no problem, right? Well, not so fast:

Apple, the maker of popular iPad and iPhone devices, will have to submit a fresh application for opening single brand retail stores in the country, as certain gaps have been found in the initial proposal.
The Department of Industrial Policy and Promotion (DIPP) has explained the gaps to the company and wants them to submit a fresh application, seeking more information on their proposal for further processing, according to sources.

What?

The problem is that while you are allowed to do this (run your own stores), you have to go and ask permission to do so. At which point, of course, you meet the wondrous Indian bureaucracy, something that has been mystifying foreigners since the Mughal days.

At present, 100% FDI is permitted in the sector. But beyond 49%, the FIPB permission is required.

And it's not quite as simple as an application reading "We're foreigners, selling our own stuff, can we open stores?" Because nothing is ever that simple in that interface between the bureaucracy and the real world.

Last month, the company had filed its proposal seeking permission for single brand retailing and to sell its products online.

Apple had not mentioned the amount of investment and number of stores it wants to open.

An e-mail query sent to Apple remained unanswered.

In a reasonable socio-economic polity, the amount of investment, number of stores, are issues for the company alone and not the government. There are echos here of a lovely story from early 1990s Russia, as they were destroying the encumbrances of their socialist idiocies. Anatoly Sobchak (at the time, Vladimir Putin's boss as Mayor of St. Petersburg as it now newly again was) announced that you no longer needed permission or a license to go into business. Just get on with it and send a letter into City Hall saying what you're doing, so that the tax stuff could all be sorted out later. He came into work the next day to see a vast queue spiraling around the block of people wanting permissions.

"You don't need permissions!"

"Yes, but we need the permission detailing that we don't need permissions."

That story might have grown a little in the retelling but it is at heart true. And it's also the bit that India hasn't quite gotten yet. The way to deregulate is not to say that you can apply for a new permission to do this at this office. It is to say that no permission is needed to do what you are allowed to do.

That is, if India wishes to keep the ban on foreign ownership and operation of multi-brand stores (I don't think it should but understand the political reasons why it is there), then the law should be "no foreign ownership or operation of multi-brand stores." If foreign ownership of single brand stores is allowed, then there should be no law or regarding such, nor even the possibility of asking for permission to do so. This is how a free and market economy works: the law is to describe what you may not do and once those things are outlined then everything else is legal to do, with or without permission.

Deregulation, that lifting of the Licence Raj, is thus not about changing what permissions are possible, but entirely removing the need for licenses, agreements, permissions altogether. Not changing regulations but abolishing them and the system that grants them. India will have a vastly better economy when that idea is firmly in place.