Apple considering possibilities of shifting a part of its production to India

According to reports, there have been several meetings between Apple's senior executives and top government officials over the last few months and this has lead to Apple "examining the possibility of shifting nearly a fifth of its production capacity from China to India". The plans include scaling up local revenue through contract manufacturers to about $40 billion over the next five years, reports state.

If these plans are followed through, it could make Apple India's largest exporter, according to experts.

"We expect Apple to produce up to $40 billion worth of smartphones, mostly for exports through its contract manufacturers Wistron and Foxconn, availing the benefits under the production-linked incentive (PLI) scheme," a senior government official told ET.

However, sources aware of the Apple's plans have said that there were "some irritants in the government's ambitious PLI scheme, that has been recently announced to incentivise local handset manufacturing and exports" that need to be worked out.

"There are some problems with some of the clauses. For instance, valuing the entire plant and machinery already in use in its plants across China and other places at 40% of that value and the extent of the business information sought under the scheme are some of the irritants," a source said.

Government officials have said that they will "look into all the concerns as the Centre is focussed on bringing high-tech manufacturing to India". Prime Minister Narendra Modi met top executives from Apple, Samsung and Lava on December 28 last year, which pushed the process forward.

"India isn't a big market for Apple as the company sells only a fraction of its total output in India. It is actually looking at India as a base to manufacture and export, essentially diversifying its production out of China," the official said.

According to reports, Apple currently sells smartphones "worth some $1.5 billion in India, of which less than $0.5 billion is locally manufactured, and has market share of some 2-3%". In contrast, Apple is a top investor in China. "In 2018-19, it produced merchandise valued at $220 billion in China, of which it exported goods worth $185 billion, according to industry experts. It directly and indirectly employs about 4.8 million people there," reports state.

According to market research firm International Data Corporation (IDC), "Apple in 2018-19 held a 38% market share of global handset exports, followed by Samsung with a 22% share".

A senior government official said that India is looking to claim a bigger share of global exports. The PLI scheme has also been designed to facilitate this by addressing "disadvantages global supply chains faced in India vis-à-vis say China and Vietnam".

"…we are expecting companies to start applying from next week, when the guidelines are out and then the scheme kicks in from August 1. This is the fastest ever planning to execution undertaken by the Indian government," a government official told ET.

The PLI scheme for large-scale electronics manufacturing was announced on April 1 and offers "a production-linked incentive to boost domestic manufacturing and attract large investments in mobile phone manufacturing and specified electronic components, including Assembly, Testing, Marking and Packaging (ATMP) units".

"We realised companies weren't relocating manufacturing to India because there were disabilities of almost 10%, so PLI addresses about 6% disabilities, the RoDTeP scheme another 0.27%, and the corporate rate tax cuts address the balance," said an official. RoDTeP or Remission of Duties and Taxes on Exported Products is another scheme to incentive exports.

The official expects "applications from Apple's component and contract manufacturers, Samsung and a clutch of Chinese investors such as Vivo and Oppo in the next few weeks for the PLI scheme".

Mobile phone exports out of India were around $3 billion for 2019-20 and "with such incentives, we expect mobile phone exports out of India to cross $100 billion by 2025, it could be earlier than that…," an official said.

As per government data, "India's total exports are estimated to have been $446 billion for April 2019 to January 2020. Out of this, the largest category is petroleum products which alone clocked $36 billion in exports. Reliance Industries in its latest earnings statement said exports from India in FY20 were at ₹202,830 crore ($26.8 billion)".

For a company to avail the benefits of the PLI scheme, it must "manufacture at least $10 billion worth mobile phones in a phased manner between 2020 and 2025" and selected applicants are required to meet targets on a yearly basis.

The PLI scheme, "which has a corpus of ₹40,995 crore, provides incentive of 4-6% on incremental sales (over base year) of goods manufactured in India and covered under target segments to eligible companies, for a period of five years subsequent to the base year as defined".

However, market experts are sceptical of the government's ambitious targets.

"We don't have (an) ecosystem ready, which could support any large-scale deployment. The ecosystem right from skilling to ancillaries is almost negligible. This weakens confidence of anyone wanting to plan big and long term," Faisal Kawoosa, founder at research agency TechArc, told ET.

Kawoosa added that "instead of positioning 'Make in India' as a competing programme, India should have projected it as complimenting the global supply chain".