Govt's PLI boost set to make India manufacturing hub for Apple iPhones

Foxconn, Wistron and Pegatron, which manufacture the bulk of Apple's iPhones, are expected to get the Cabinet's go-ahead under the productivity-linked incentive (PLI) scheme for mobile devices

It will be celebration time for the government: After nearly three years of hard negotiations and policy changes, it would have succeeded in convincing an iconic global brand to shift part of its production from China to India. That had looked nearly impossible until years earlier.
 
The iconic brand here is Apple Inc, over 95 per cent of whose current mobile phone manufacturing takes place in just one country — China.
 
With trade tensions between the US and China growing, the Cupertino, California-based company has now started hedging its bets and looking for an alternative manufacturing destination. Despite tough competition from — as analysts have mentioned — Vietnam, where South Korean major Samsung set up its mobile device export hub after shifting production from China, and Indonesia, India seems to have proved an attractive choice.

 
The Union Cabinet is expected to soon clear the names of eligible players under the government’s productivity-linked incentive (PLI) scheme for mobile devices, a programme meant to transform India into a global hub for mobile exports. Taiwanese manufacturers Foxconn, Wistron and Pegatron, which manufacture the bulk of Apple’s iPhones, are expected get the go-ahead. The details, however, will be known only after the Cabinet’s final approval.
 
According to analysts, Apple Inc, based on minimum targets, should end up with an incremental production value of $29 billion in India over the next five years, mostly for the export market. That is around 10 per cent of its current free on board production value in China, of around $50-60 billion. The estimate is based on eligibility for the PLI scheme for electronics manufacturers.
 
The shift in the production base should be seen as a shot in the arm for India, which, despite claims by politicians and opportunities presented by the US-China trade war, has had a weak record in attracting companies moving bases out of China. A recent Nomura Group study showed that only three of the 56 companies shifting production out of China relocated to India; 26 went to Vietnam, 11 to Taiwan, and eight to Thailand.

 
The magic this time, many say, lies in the PLI scheme, under which eligible players (five companies) are to receive incentives ranging from 4 per cent to 6 per cent of production value for five years, provided they achieve their investment and production value target for each year. Also, the global players will have to export phones priced over $200 (that is, Apple phones). Even Samsung has applied for benefits under the scheme.
 
The total incentives for mobile phones as estimated by the government comes to $5.3 billion. This is expected to partly neutralise the production cost differential between China and India (that ranges from 9 per cent to 20 per cent).
 
This also marks India’s aggressive entry into the global mobile export market, dominated at present by China and Vietnam, which control over 80-85 per cent of world exports. The total value of mobile phone exports from India as of 2019-20 stood at a meagre Rs 27,000 crore. But the PLI scheme is expected to give it a fillip. The new electronics policy is targeting $110 billion worth of mobile phone exports by 2025. That will make India the largest exporter after China — ahead of Vietnam, which will be pushed to number three.
 
India at present is a very small market for Apple Inc, accounting for only 0.5 per cent of its global revenues (based on FY19 figures) and just 3.5 per cent of its revenues from Greater China, which is Apple’s largest market after US and Europe. The question now is whether Apple will replicate in India its China model of concentrating on both domestic and export markets. After all, can Apple afford not to play a larger role in an annual smartphone market of 150 million people?