India drops buy Indian rules for technology products

India has dropped a rule banning private companies from buying electronics that weren’t at least partly made in India. The rule—which will still apply to government purchases—could have delayed or derailed expansion plans by global telecommunication and technology companies, which have long been among the biggest investors in Asia’s third-largest economy.

Critics said the sudden restrictions on how companies buy their electronics, first announced in February 2012, were unfeasible as India doesn’t have the manufacturing capability to build all the computers, cellular network equipment and printers it needs as its economy expands.

The announcement is the latest sign that as emerging markets fall out of favor with global investors and executives, New Delhi is feeling the pressure to open its markets more to attract the international capital it needs to jump start the economy.

India’s gross-domestic-product growth slipped to a decade low of 5% in the year ended in March and is expected to be 5% or lower this fiscal year. While it used to be one of the world’s hottest markets, India must now work harder to persuade companies and investors to park their cash there. It needs more foreign funds to help expand its economy, create employment and build its infrastructure.

In November, the country retreated from another restriction when it decided to drop a proposal to limit foreign investment in pharmaceutical companies. New Delhi announced earlier this month that it is considering allowing foreign investment in Internet retailers that sell products directly to consumers.

India has announced a number of measures in the past 18 months aimed at bringing in long-term foreign investment to help finance its current-account deficit. In July, it decided to allow full foreign ownership in telecommunication companies and supermarket chains for the first time. India’s decision to drop the “buy Indian” rules comes after global and local executives said that many of the electronic goods crucial to India’s growth aren’t currently made in India.

The Buy Indian requirement said that electronics purchased in India must include locally made components accounting for at least 30% of the total value of the product. That figure would be lifted to 100% by 2020. For information-technology-related products such as computers and printers, the local content requirement was to start at 25% and be raised to 45% within five years.

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