Apple’s Strategic Shift: A Strong Showing in Indian iPhone Production

Apple Inc.’s astute maneuver to bolster iPhone manufacturing in India—despite existing tariff uncertainties—has yielded substantial results. In the initial half of the fiscal year 2025-26 (FY26), the tech giant exported a remarkable $10 billion worth of iPhones from India, representing an extraordinary growth of 75 percent over the previous year and achieving a pivotal export milestone.

Industry insiders suggest that, should this momentum persist, India could potentially constitute one-fourth of the global iPhone production by value by the end of FY26.

Anticipated exports could surpass $22 billion, with an additional $6 billion generated from domestic sales.

The impressive growth during the first six months can be attributed to the debt negotiations conducted by Apple’s CEO, Tim Cook.

He adeptly navigated the turbulent tariff landscape and fostered a conciliatory relationship with US President Donald Trump, who initially pushed for domestic manufacturing and threatened to impose onerous tariffs on imported components.

In response, Cook swiftly escalated Apple’s commitment to US investment by an additional $100 billion, raising the total to $600 billion across various sectors, including server manufacturing.

Subsequently, Trump indicated that firms like Apple would avoid punitive tariffs, allowing imports from India to proceed at zero duty.

This development is particularly positive, considering the US has imposed a 50 percent tariff on a spectrum of goods imported from India in retaliation for Indian purchases of Russian oil.

However, challenges loom on the horizon. A recent dynamic has the potential to jeopardize India’s burgeoning smartphone export narrative, stirring uncertainties within the Apple-India alliance—an exemplar of successful manufacturing collaboration between a major corporation and the government.

The emerging dilemma follows a meeting between Trump and Chinese President Xi Jinping in Busan, South Korea. In the aftermath, the US government halved the punitive fentanyl tariff on all exported goods from China, reducing it from 20 to 10 percent. If this thaw in relations continues, the expectation is that tariffs may eventually be eliminated altogether.

This shift could undermine India’s standing, enticing Apple to reevaluate its growth ambitions in India. Currently, production value is projected to exceed $45 billion within two years, making India the primary supplier to meet American iPhone demand.

The Current Advantage

India currently enjoys a favorable duty structure for mobile exports to the US, operating at zero duty compared to China’s 20 percent.

Nevertheless, the recent reduction of the fentanyl duty on Chinese imports may neutralize this advantage, particularly given India’s production costs, which are approximately 12 percent higher than those in China.

This cost discrepancy could be exacerbated if the US abolishes its duty on Chinese goods entirely.

Apple has collaborated extensively with the Indian government to enhance smartphone exports, reaping significant benefits from the Centre’s production-linked incentive (PLI) scheme designed for eligible mobile manufacturers.

Between FY23 and FY25, a staggering 75 percent of the $1 billion cumulative incentives disbursed under this scheme were allocated to Apple’s three iPhone assemblers.

In return, Apple has pledged to lead the charge in smartphone exports from India. In the first half of FY26, Apple accounted for 75 percent of the nation’s total smartphone exports, a notable increase from just 24 percent in FY22, the inaugural year of the PLI scheme. In the same timeframe, Apple’s exports have surged over 25 times.

Without Apple’s substantial presence, India’s electronics exports would not have soared to become the second-largest category within total national exports, with the company alone comprising 44 percent of the overall electronics export volume.

Going Above and Beyond

Moreover, Apple has exceeded its commitments under the PLI scheme. Initially aiming to shift 10 percent of its global iPhone production from China to India by FY26, the company has astonishingly doubled that target with half a year still to spare.

Furthermore, Apple has surpassed its employment projections, having generated over 200,000 direct jobs across its primary assembly partners—Tata Electronics and Foxconn.

Significantly, Apple has shown a remarkable ability to adapt its strategy in India in accordance with the prevailing geopolitical landscape.

In response to escalating border tensions between India and China, the Indian government modified its foreign direct investment (FDI) policy, barring Chinese companies—including joint ventures—from establishing manufacturing operations in India.

This policy shift initially disrupted Apple’s plans to engage 12-13 major Chinese component suppliers to localize production, with a government mandate targeting 35-40 percent value addition by FY26.

Consequently, two years ago, Apple recalibrated its strategy. The company began sourcing components from Indian and non-Chinese suppliers, commencing with Tata Electronics, which established an enclosure plant and later acquired assembly operations from Wistron and Pegatron.

This led to the formation of a new ecosystem comprising approximately 50 component vendors, including 25-30 micro, small, and medium enterprises (MSMEs), many of which are first-time entrants.

The government has demonstrated flexibility as well; with current localization levels hovering around 15 percent, it has relaxed the insistence on a 40 percent target by the PLI scheme’s conclusion.

The PLI Dilemma

The pressing inquiry now is: Can Apple Inc. and the Indian government adeptly navigate the evolving US-China landscape?

A high-ranking executive at one of Apple’s suppliers observes, “The ball is in the government’s court, which is engaged in ongoing discussions with Apple. The US firm will continue to diversify its strategies and refrain from over-reliance on any single market, particularly China.”

He elaborates that prior to the commencement of iPhone assembly in India, the cost discrepancy between India and China was a staggering 17-19 percent, favoring China. The PLI scheme successfully narrowed this gap to a more manageable 12 percent.

“However, the PLI incentive concludes this financial year,” he cautions, asserting, “Should the PLI not be extended for a few additional years, China will regain a competitive advantage in manufacturing and exporting smartphones, potentially stalling India’s rapid production expansion and thwarting plans to transfer more capacity from China to India.”

Various hurdles remain as well. Apple’s expansive growth may face constraints due to stringent tax regulations, tariff frameworks, and special economic zone (SEZ) stipulations—critical elements in an export-driven domain.

A senior consultant collaborating with global mobile manufacturers contends, India’s tax frameworks must aspire to match those of China and Vietnam instead of adhering to a generic model.

Unless India undertakes tax and regulatory reform to achieve competitive efficacy, Apple’s growth prospects will be curtailed.

Conversely, detractors argue that the PLI scheme was engineered to be a finite, five-year initiative aimed at galvanizing exports and facilitating companies in achieving global cost competitiveness.

They assert that this objective has been met, evidenced by the considerable surge in mobile exports, rendering ongoing subsidies—particularly to a globally dominant entity with negligible domestic value addition—unnecessary.

For the time being, the responsibility lies with the government. Apple’s capability to convince policymakers of its continued necessity for support to contend with China will be pivotal in determining whether India sustains its upward trajectory in smartphone manufacturing or yields the next phase of expansion to its formidable rival.

Source link: Communicationstoday.co.in.