Apple Seeks More Incentives to Expand India Facilities, New PLI Schemes in the Works

India has wanted to lessen its dependence on Chinese electronics products for a long time as they are a major source of its import dependence on the country.

This goal aligns with the larger ‘Make in India’ narrative, now additionally repurposed in the wake of COVID-19 into ‘Atmanirbhar Bharat’ or Self-Reliant India.

Chinese smartphone brands like Xiaomi, Oppo, Vivo, and Realme currently hold three-fourths market share in India – which also necessitate India’s efforts to develop indigenous production and innovation capacity.

Apple, the Cupertino-based technology giant is keen to tap into this localization narrative by reducing its export-oriented production in China and expanding to India instead. However, to achieve this, Apple is demanding more incentives to counter critical gaps in India’s supply chain.

India seeks a win-win situation – lowering Chinese market share and encouraging FDI for domestic capacity-building

India’s smartphone market is presently a concentration of foreign players led by Chinese brands. Chinese phones commanded 75 percent of India’s smartphone market in 2020 – the highest since 2014 and up from 71 percent in 2019, according to research from data firm Counterpoint. Xiaomi Corp dominated the India smartphone market and occupied a 26 percent share in 2020.

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Given the size and rapid growth projections of the Indian smartphone market, particularly in tier 2 and 3 cities, other leading international non-Chinese players, like Apple and Samsung, also want to secure a larger presence.

Last year, Apple, through its contract manufacturers Foxconn, Wistron, and Pegatron, was able to tap into the sector-specific Production-Linked Incentive (PLI) scheme to gain incentives by setting up in India. The PLI scheme was introduced to boost domestic manufacturing and attract large investments in mobile phone manufacturing and specified electronic components, including Assembly, Testing, Marking and Packaging (ATMP) units.

Since 2017 and 2018, Apple had begun assembling some iPhone models in India (iPhone XR, iPhone 11, iPhone 6s) – increasing operations via Foxconn and Wistron. Another supplier, Pegatron, set up its base in India last year. Wistron, however, was put on probation in December 2020 as operations in its south Indian plant (Narasapura) were affected over non-payment of workers that led to violence.

Altogether, the three Apple suppliers had committed to about US$900 million and hiring 1000s of workers over five years to make iPhones in India.

New PLI schemes expected

Irrespective of the blow to the PLI scheme after Wistron’s probation, India is keen on expanding it to develop its industrial capacity.

This year, according to a recent Reuters report, India could offer new incentives to electronics manufacturers that would cover production of tablets, laptops, and servers.

The new PLI scheme, that will offer cash-back to manufacturers for exports, is expected to have a budget of up to INR 70 billion (US$964.5 million) over five years as per sources quoted in the media.

More information is awaited from the government on this plan as well as others currently being floated to boost other product segments like wearable devices.

What Apple is seeking from India

Apple is widely reported to be lobbying for a bigger budgetary outlay of INR 200 billion (approx. US$2.70 billion) to start manufacturing iPads for the first time in the country – before the new PLI scheme for the sector gets finalized.

A major reason being that India does not currently have the scale or the supply chain for making such products. For one, the manufacture of chips in India is still a weak point. The government policy of not reimbursing costs of failed chip projects till after a new project has been set up – may be why the area has lagged. Second, the Indian market is flooded with competitive duty-free imports of tech products. Also, the batteries used in the devices are made from lithium that India imports; China has one of the world’s largest lithium reserves. 

Nevertheless, Apple is serious about diversifying its production facilities in Asia – looking at both India and Vietnam. The impetus for this began during the US-China trade war and will likely remain as geopolitical sensitivities inject volatility into the market. Foxconn has reportedly invested US$270 million into building a new factory in Vietnam in order to expand production capacity. 

A final catch

Yet, even if Apple intends to have more facilities in India – the products will be assembled by its contract manufacturers.

The Apple products, iPad and MacBook, are assembled by Taiwan’s Compal Electronics and China’s BYD Electronic International.

This could be problematic as India is not keen on inviting further Chinese technology investments. One way the government appears to want to see this play out is if Apple opts for any of its non-Chinese contract manufacturers.

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