Apple's giant Make-in-India leap

Apple CEO Tim Cook at the opening of the Apple Store in Mumbai on April 18.

The very first Apple product that was available for sale in India was the Mackintosh personal computer, way back in 1998. But guess what? It was only in 2017 and thereafter that Apple started making iPhones in India and it was only on April 18, 2023, that Apple opened its first store in India in Mumbai and the second one in New Delhi on April 20, 2023. Basically, it took a good 25 years for Apple to open a store in India, but the good news is, Apple's two stores are a big deal for various reasons.

More than 90 percent of Apple's iPhones were produced and assembled in China till two years back but there is a palpable shift now, with 7 percent of Apple's overall iPhones being produced in India last year and that number will rise to 10-15 percent this year. Remember, that number was just 1 percent in 2021. What caused this paradigm shift in coaxing Apple to Make in India?

Well, for starters, thanks to India's production linked incentive  (PLI) scheme to promote Make in India, under the aegis of the Narendra Modi government, India's smartphone production with made-in-India iPhone shipments grew by 65 percent in volume terms and 162 percent in value terms last year.

Under the handset PLI scheme launched in April 2020, foreign companies had to invest Rs 250 crore and attain Rs 4,000 crore worth of incremental output/sales in the first year, to be eligible for a 6 percent incentive as payback. Apple's contract manufacturers, namely Foxconn and Pegatron, both located in Tamil Nadu and Wistron, which is in Karnataka, are participants in the Modi government's PLI scheme and have committed to jointly producing at least Rs 3.6 lakh crore worth of iPhones over a five-year period, of which 80 percent will be exported.

Initial estimates suggest that India exported mobile phones worth over $11 billion in FY23, up from $5.8 billion in the year before, as manufacturers stepped up production and outward shipments. Apple, in fact, overtook Samsung to become the leading mobile phone exporter in November 2022 and achieved the record of touching $1 billion in mobile phone exports from India, in December 2022.

To make India a manufacturing hub, the Modi government extended the scope of the PLI scheme in 2021 and it now covers 14 sectors. One of the largest of course is the smartphone PLI scheme, with an outlay of Rs 40,995 crore. Under the scheme, the government estimates a total incremental production of Rs 10.05 lakh crore, exports of well over Rs 6.5 lakh crore and direct and indirect jobs of up to at least 8 lakh, maybe more by 2026. The top five global destinations that India currently exports mobile phones to are the UAE, the US, the Netherlands, the UK and Italy, showcasing how India has diversified its export markets.

India is expected to match China's production capacity of 45-50 percent for Apple's iPhones by 2027. Do note, Apple is exploring ways to reduce its reliance on China as tensions between Washington and Beijing continue to escalate. Apple's longtime partners, who make most of the world’s iPhones from sprawling factories in China, have added assembly lines at a rapid pace in India over the past two years, driven by the excellent investment climate provided by the Modi government, including personal outreach by PM Modi to global investors and businessmen, at every available global forum.

The world’s most valuable company (Apple) struggled last year with chaos at Foxconn’s main 'iPhone City' complex in Zhengzhou, which drove home vulnerabilities in Apple’s supply chain within China. Apple will likely try to manufacture the next iPhones in India at the same time as in China, sometime in the fall of 2023. If so, that will be the first time that iPhone assembly will begin concurrently in the two countries. And if aggressive expansion of its suppliers continues, Apple could assemble a quarter of all its iPhones in India by 2025, which would be a tremendous feat for the Make in India story.

Companies making and selling high-end devices, such as iPhone from Apple and the Galaxy S and Note Series by Samsung, are among the biggest beneficiaries of the Modi government's PLI scheme, as are some homegrown players like Lava, Karbonn, Micromax, and Intex. With the demand for electronics hardware expected to rise rapidly to over $400 billion by 2025, India cannot afford to bear foreign exchange outgo on account of electronics imports and Apple's decision to expand its India presence, therefore, could not have come at a better time.

It was in 2018 that the Modi government allowed 100 percent FDI in single-brand retail. For single-brand retailers with over 51 percent FDI, the policy required that 30 percent of the value of goods has to be procured from India as part of the local sourcing requirement. This could be met as an average during the first five years, and thereafter annually towards its Indian operations. In 2019 however, the Modi government decided that all procurements made from India by a single-brand retailer for that brand shall be counted towards local sourcing, irrespective of whether the goods procured are sold in India or exported. The export of electronics goods has overtaken readymade garments, a traditional mainstay from India, on the back of a surge in the shipment of mobile phones. Latest data estimated electronics exports to have shot up over 50 percent in FY23 to $23.6 billion. Electronics are now the sixth biggest item in the export basket, just a little lower than the $25.4 billion worth of drugs and pharmaceutical exports. Mobile phone exports are estimated at over $11 billion in FY23 and clearly, the Modi government's Make in India push is working.