iPhone exports double to $10 billion, India now woos component makers

iPhone exports double to $10 billion, India now woos component makers

IN THE government’s efforts to make India a key player in electronics manufacturing, one name that stands out is Apple. The Cupertino-based company, which had so far relied on facilities in China to manufacture iPhones, has shifted a sizable base of its assembly operations to India.

India exported smartphones worth around $15 billion in 2023-24, of which iPhones contributed 65 per cent, or about $10 billion – up from $5 billion in the previous year. While the world’s biggest electronics contract manufacturer, Foxconn of Taiwan, has major operations in India to assemble iPhones, for the first time, an Indian company, Tata Electronics, too secured a contract to assemble iPhones.

Apple has also become a major employer, a large part being women, at its assembly factories in India. “Apple currently directly employs 1.5 lakh people and that number will increase significantly going forward,” Union Minister of Electronics and IT Ashwini Vaishnaw told The Indian Express. Over the next three years, officials in the IT ministry estimate, the supplier chain ecosystem would so expand as to employ almost 5 lakh individuals.

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The company’s expansion has also set in motion a number of its foreign suppliers to set up shop in the country. “Every major entity in the component supply chain ecosystem, be it for camera modules, communications, power supply or digital signal processing are actively looking to set up a base in India,” Vaishnaw said.

This automatically lends itself to much better infrastructure in the vicinity. At Sriperumbudur, Apple’s main manufacturing base about 40 km from Tamil Nadu capital Chennai, where Foxconn has two big iPhone assembly plants, two massive dormitories, primarily for women workers, are coming up, modelled after China’s iPhone city, Zhengzhou.

As per a Bloomberg estimate, in FY24 one in seven iPhones sold globally was made in India. By 2028, the government expects a quarter of all iPhones to be made in India, with some of its accessories, such as AirPods also being assembled in the country. In the next two-three years, Apple wants to ramp up its iPhone production in India to more than 50 million units per year.

While the efficiency of the new iPhone unit in India is yet to match up with factories in China, New Delhi’s unfavourable stance towards companies from the mainland, and high tariff rates for component imports, are also hurdles faced by Apple’s suppliers planning a base in India.

According to Apple’s suppliers’ list for 2023,  as many as 157 contractors manufactured in mainland China, up from 151 the previous year. The number of Indian suppliers, however, has remained remained stagnant at 14 — suggesting limited success so far in translating the tech giant’s growing footprint in India and Southeast Asia to a reduced reliance on China.

But government subsidies under the production-linked incentive (PLI) scheme for smartphone production, a worsening relationship between the US and China, and Beijing’s tough Covid-19 curbs, have all prompted Apple to move a respectable portion of iPhone assembly to India.

Apple’s contract manufacturers Foxconn, Pegatron and Wistron (which was acquired by Tata last October) have managed to meet sales and investment thresholds essential for securing payouts under the PLI scheme. While the government does not share the breakdown of payouts for individual entities, it is understood that the three Apple assemblers along with Samsung and homegrown electronics manufacturer Dixon are expected to receive upwards of Rs 4,500 crore for meeting their FY23 PLI targets.

Foxconn, which has the biggest iPhone assembly operations in India, currently hires more than 40,000 people at its plants in Tamil Nadu. Pegatron has a relatively smaller operation and employs around 10,000 workers. Winstron plant, acquired recently by Tata, employs 27,000.

Apple’s expansion has spurred interest from companies like Google in assembling phones in India; there has also been a rise of domestic contract manufacturers — Tata Electronics, Dixon, VVDN and Kaynes have stepped up to service assembly orders of foreign smartphone makers. India has a big worker pool in this category of assembly operations, which is relatively easier than component manufacturing, requiring higher skill sets “Contract manufacturing is a complex process and requires precision work. Over the last few years Indian manufacturers have perfected these processes and are meeting global standards and requirements,” Vaishnaw said.

Apart from Foxconn, Pegatron and Tata which assemble iPhones, there are 11 other firms that have set up bases in India to supply various components needed to make the phones.

Foxlink, a subsidiary of Taiwanese Cheng Uei Precision Industry Co Ltd, based in Andhra Pradesh, makes cables for iPhone chargers. Apple sources battery packs from the US-based Flex Ltd, which has factories in Pune, Chennai, and Bengaluru, among others. China-based Sunwoda Electronic Company Ltd, which has a plant in Uttar Pradesh, is also a battery supplier to Apple. Jabil, from its plant in Pune, makes plastic casings and enclosures for AirPods which are shipped to China and Vietnam where the earphones are finally assembled. Apple sources its chargers from the China-based Lingyi iTech (Guangdong) Company which has a plant in Chennai.

While some foreign suppliers have started manufacturing in India, this number is a fraction compared with Apple’s suppliers in China. The industry believes India needs to fix its act on the import tariff front. Earlier this year, the India Cellular and Electronics Association in a report said that India has among the highest tariff lines for smartphone components – its simple average Most Favoured Nation (MFN) tariff for inputs is 8.5 per cent, higher than China’s 3.7 per cent.

High import tariffs are typically put in place to prioritise the domestic industry, but experts have argued that in the absence of a local industry – as is the case with component makers in India – such high tax rates act as a deterrent for companies to invest in the country. An IT Ministry official said the government is aware of these concerns and the ministry was working with the Commerce Ministry to reduce or remove tariff rates for several components.

“Globally there are 2-4 tax rates so it becomes easy to bring in components, but that number is much higher in India. We are moving to harmonise it so companies don’t have to worry about classification. The reason for increasing tariffs during the growth stage is that a country wants to develop their own companies. But, the question is that if you want to bring more suppliers to India then we need to have the right mix between high and low tax rates,” the official said.

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