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Apple’s India manufacturing plans hang in the balance

LiveMint logoLiveMint 27-08-2017 Rozelle Laha

New Delhi: The second phase of Apple Inc.’s plan to make the iPhone in India is hanging in the balance as the firm awaits government approvals and tax breaks that it says are key to making a profit, a person aware of Apple’s plans for the market said.

“Else, it doesn’t make sense for Apple to import components by paying heavy duties from other parts of the world to assemble and sell here,” the person said on condition of anonymity.

In the first phase of its India plan, Apple started working with Taiwanese contract manufacturer Wistron Corp. to assemble the iPhone SE in Bengaluru.

If Wistron doesn’t find it a profitable proposition and decides to stop manufacturing, Apple will discontinue phase one, said the person cited above.

Wistron declined to respond to a detailed questionnaire seeking comments on the duration of its contract with California-based Apple and the sustainability of the business model.

Apple has been in talks with the Indian government since May 2016, when its chief executive Tim Cook and Prime Minister Narendra Modi agreed to set up an Apple production and export base in India that goes beyond just assembling iPhones.

The company is looking to India after sales in China, once a major growth driver, started sliding. China sales fell 14% from a year earlier to $10.7 billion in the three months ended April. Apple has not disclosed how much revenue it generates in India but said that sales grew by “strong double digits” in the country in the most recent quarter, Reuters reported. Apple’s fiscal year ends in September.

Reuters on 1 August had reported that Apple has asked the government to extend tax breaks to its suppliers if India seeks to become a manufacturing hub for iPhones and its components.

“We are very happy that Apple has started their phase one manufacturing of mobile phones in India,” said Ajay Kumar, additional secretary in the ministry of electronics and information technology. “We look forward to them expanding their manufacturing footprint in India. We also welcome if the ecosystem of component manufacturing units of Apple also move with them. Discussions are being held with Apple by government. Given the market opportunities and favourable ecosystem which India offers, we think there is win-win opportunity here.”

In response to a Lok Sabha question on 9 August, minister of state for electronics and information technology P.P. Chaudhary said that to assess the impact of concessions being sought by Apple India Pvt. Ltd, the government had sought information on “installed capacity and production of Apple iPhones from the first phase set up in Bengaluru by AIPL, including the investment made and employment generated by the manufacturing facility”.

The government also sought information on the “scale of the proposed investment in the second phase for manufacture of Apple iPhones in India, the proposed capacity and likely employment to be generated”, Chaudhary said in his response.

Apple did not answer a detailed email from Mint on its response to government’s queries and the firm’s next steps in India.

The person cited in the first instance said that Apple could not answer that question “as they are not directly making any investment here in India”.

The company has tried to explain to the government in discussions earlier that if the company manufactures (not just assembles) the iPhones in India, it can say it is investing in India, this person said.

“Right now, the company is only paying others to get the services. So, for instance, it has paid Wistron to set up the plant in Bangalore on their behalf. Today, Wistron is manufacturing for Apple Inc., tomorrow they can manufacture for someone else there. So, this cannot be termed as direct investment by Apple Inc. in India. It is just a payment. Similarly, a component manufacturer can put up a plant and say that a team of a certain number of people has been hired to focus only on Apple Inc. But that is not employment that Apple Inc. is creating in India.”

Importing components by paying heavy duties is not “a viable option” for Apple, he said. Use of local content, however, is.

“If India is set to become the largest smartphone manufacturing hub in the world, attracting component manufacturers here with good rebates, deduction of duties and tax breaks makes sense. Not just Apple Inc., other companies too will benefit,” the person said.

In the firm’s third quarter earnings call, CEO Cook reaffirmed his firm’s commitment to India. “I’m very, very bullish and very, very optimistic about India,” he said.

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