AAPL Apple Inc

NEW DELHI—India's government on Monday eased foreign-direct investment restrictions in several sectors to increase inflows, a move that could also pave the way for Apple Inc. to open its own stores in one of its main growth markets.

The policy changes relax foreign direct investment thresholds in the retail, defense and civil-aviation sectors among others. Prime Minister Narendra Modi tweeted that "the move would provide a major impetus to job creation and infrastructure" and make India the most open economy in the world for foreign investment.

The move signaled the government was pushing ahead with its effort to liberalize its economy and came just two days after India's central bank Governor Raghuram Rajan announced that he would step down when his term ends in September. The news briefly rattled Indian markets on Monday but shares quickly brushed it off, helped by the government's announcement.

As part of the changes, the government said foreign-owned single-brand retailers would have a three-year grace period from complying with local-sourcing requirements that demand they buy at least 30% of their manufacturing materials from Indian vendors. After that, the rules for retailers offering "state-of-the-art" or "cutting-edge" technology would be relaxed for another five years.

Apple in January said it had sought government permission to open its own stores in India. It now sells its devices through a network of Indian-owned distribution companies and retailers.

India's minister for commerce and industry Nirmala Sitharaman said last month she supported waiving the local-sourcing rules that could have blocked Apple's plan for stores. Earlier in May, India's finance ministry rejected the same recommendation from a government panel, two officials said.

An Apple spokeswoman didn't respond to requests for comment Monday.

Since assuming office in May 2014, Prime Minister Narendra Modi's government has moved to relax investment rules, helping the country emerge as one of the top destinations for foreign money.

India reported a 29% jump in foreign direct investment inflows to $40.46 billion in the fiscal year ended in March, compared with $30.93 billion in 2014-15, according to data from the trade ministry.

Ms. Sitharaman said the policy change may mean that Apple would have to resubmit its single-brand retailing proposal.

India is set to overtake the U.S. as the world's second-biggest smartphone market after China. Having its own stores in India would help with Apple's branding in India, analysts say, since it still has less than 3% market share for smartphones there and faces stiff competition from low-cost smartphone makers.

Apple stores in India would "attract a lot of people from various walks of life," said Jayanth Kolla, founder of research firm Convergence Catalyst. Such stores would also likely display all of Apple's products, while many consumers may only be familiar with iPhones, he said.

Apple Chief Executive Tim Cook made a high-profile visit to India in May, meeting with Prime Minister Narendra Modi to discuss his company's manufacturing and retailing plans. During his visit, Apple announced the opening of two new offices in the country to encourage mapping and mobile app development.

Price is an obstacle for Apple in India. Some 70% of smartphones sold there last year cost less than $150, while Apple's new iPhone SE, its least-expensive new iPhone, typically costs more than $500 in the country.

Among the other policy changes announced Monday, the government allowed foreign investors to own up 100% of domestic airlines, raising the limit from 49%. It didn't tinker with the current ceiling of 49% for foreign airlines to invest in domestic carriers.

It also removed a condition that foreign companies must bring state-of-the-art technology for investments of over 49% in the defense sector. With the latest change, foreign investors will be permitted to own up to 100% of local defense ventures after obtaining government approval.

New Delhi also permitted foreign companies to own up to 74% in "brownfield" pharmaceuticals projects without prior government approval, but proposals for 100% foreign direct investment will still be scrutinized by the government.

It also raised the foreign direct investment limits in broadcasting carriage services, including mobile television, cable networks and direct-to-home services, to 100% from the present 74%.

Write to Rajesh Roy at rajesh.roy@wsj.com and Newley Purnell at newley.purnell @wsj.com

(END) Dow Jones Newswires

June 20, 2016 11:25 ET (15:25 GMT)

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