Can India keep pace with geopolitics and attract more Apple investment?

Apple's India iPhone boom rode on US-China tariff tensions, but sustaining growth now hinges on fresh policy support and supply-chain depth

Fy26 turned out to be a blockbuster year for iPhones in India. As tariff wars raged for most of last year between China and the US, president Donald Trump imposed a hefty 20 per cent fentanyl duty across all imports (including for smartphones which had zero duty) on China.  

As things looked like getting out of hand, Apple Inc CEO Tim Cook took a calculated gamble — he started shifting the bulk of the iPhone being produced for the US from Chinese factories to India.  

The shift was discernible in the June quarter of last year when about 44 per cent of the demand for iPhones in the US was shipped from India. Apple Inc’s financial year is a 52- or 53-week period that begins on the last Sunday of September each year and ends on the last Saturday of September.  

As volumes were ramped up, Cook ensured that nearly the entire US demand was shipped with “make in India phones”.

Cook leveraged the duty differential — exports of phones from India to the US were at zero duty compared with 20 per cent for China. So even with India’s higher cost of production (over 6-8  per cent more than China’s), India was clearly far more cost-attractive.  

The gamble proved to be a win-win for Apple and India. So FY26 became a record year for iPhone production — that single year accounted for a staggering 36 per cent  ($25 billion) of the free on board value of iPhones produced cumulatively over the last five years during the tenure of the production linked incentive scheme that ended that year.  

As a result Apple surpassed its target of production value committed under the PLI at the end of five years by a staggering 180 per cent. 

Not only that, overall iPhone exports from India in FY26 hit a record ₹2 trillion ($21 billion) — up 33 per cent over the previous year. Exports to the US alone grew 86 per cent from $10.5 billion in FY25 to $19.6 billion in FY26, with nearly 78 per cent of the value of iPhones  produced in India being shipped to the US . 

What now? 

The big question is, can Apple sustain the momentum now without the duty arbitrage. This year the US Supreme court declared fentanyl tariffs illegal, bringing China at par with India at zero duty. Further, there are clear indications of a thaw in the US-China relationship.  

Last fortnight Trump flew to Beijing to meet Chinese president Xi Jinping with an entourage of the Who’s Who of American business, including Cook. 

After all, China for him is still a crucial market — it accounts for nearly 18 per cent of Apple’s global revenue compared with only around 2 per cent in India. And China churns out 75 per cent of iPhone’s global production, with India doing the rest. 

Vendors working for Apple and those following the company closely say that with the US treating China on an even keel, the power equations are clearly changing between the two countries. With the threat of a trade war receding fast, Trump now wants to strike some big business deals. 

The US and China have agreed to discuss reciprocal tariff cuts of around $30 billion in goods. And with three more meetings set to be held between Trump and Xi this year, both sides are positive that tariff issues would be sorted out. 

So will Cook continue to bet big on India? In many ways his strategy has emanated from responding to the challenges of changing geopolitical realities and keeping his business intact.   

Cook, Trump, China 

It was between 2017 and 2021, during Trump’s first presidency, that Cook started looking for a hedge from his overdependence on China as a manufacturing hub. That was when Trump had imposed a 10-25 per cent duty on Chinese imports targeting electronics, machinery, and capital goods among others. 

But despite the onslaught, Cook was able to keep smartphones away from the harsh duties, convincing Trump that such a move would only strengthen Samsung and the Koreans at the expense of an American company.  But he also took the call to start diversifying assembly to India. 

The Biden administration mostly continued with Trump’s tariffs and broadly supported a policy of getting companies to reduce their dependence on China, which meant Apple Inc had the backing to up the ante in India. 

But in Trump’s second term, Cook came under fire even on his India play — he was pulled up for moving production from China to India, which, the president said, did not chime with his vision of making iPhones in the US and generating jobs. He even hinted at tough tariffs of upto 20 per cent if Cook did not contribute to making “America Great Again”. 

Cook made peace with Trump, committing $600 billion to manufacture AI servers in the US, set up new data centres in the country and agreeing to support Intel by buying their chips as well as sourcing the rest from TSMC’s plant in the US. Trump in turn accepted Cook’s premise that iPhones were too expensive to assemble in the US, at least for the time being. 

India’s options 

Analysts point out that even if Apple is able to continue at FY26 levels in India without any growth, it will still double its production value in less than three years (compared with the five years it took to hit $70 billion). 

Research agency SAG projects that by calendar year 2026, India’s share of iPhone production would hit 28 per cent from 23 per cent in 2025. Meity expects the share to hit over 30 per cent in the next few years. 

But there are tough challenges. “On the one hand the fear of US punitive action on tariffs against China now is pretty much over. So there might be no logic to shift US exports en masse from China to India anymore as it is more expensive to produce here. So the government needs to come out with a package which is as competitive as China’s,” said a senior executive who has closely worked as a vendor to Apple Inc. 

India’s new supply chain decree for China, introduced in April, makes it more difficult for established iPhone Chinese suppliers to provide technology or set up joint ventures in India as they could face punitive action from the state which plans to keep a close watch . 

New Delhi had closed the doors on foreign investment from Chinese vendors of iPhones to set up operations in India after the 2020 Galwan clash. But it has recently reopened the doors a little, allowing foreign companies with an indirect Chinese or Hong Kong stake of 10 per cent or less to invest in India under the automatic approval route. 

“The response from potential Chinese companies has been very lukewarm. So what is clear is that India has to build its own Indian supply chain, with non-Chinese and homegrown players, which has just begun for Apple Inc. Even the new players under the ECMS (Electronics Component Manufacturing Scheme), in which no Chinese company has participated, will take time,” said a CEO of a leading component player. 

Clearly the government has its task cut out. It will, for one, have to quickly work on a new PLI scheme — something that’s already under discussion — to continue to support smartphone exporters to partly neutralise their cost disadvantage which still persists. 

Two, it has to work on key areas of contention — for instance, the interest on capital goods is 6-8 per cent higher than in competing nations. So is the interest on working capital.  

Also, with much less economies of scale than in China, logistics costs are much higher. Lastly, policy flipflops are a big stumbling block on ease of doing business, which is a red flag. It’s clearly over to the government now.