2022 was a game changer for the mobile phone market in India, especially with Apple betting big on the country.
The PLI scheme for mobile phones was amongst the first PLI schemes to be approved and notified by the Indian government. It provided for incentives worth 4-6 percent on incremental sales and budget outlay for the incentives was Rs 38,645 crore.
The results were quite dramatic, India is now the world’s second largest mobile phone manufacturer. The government even estimates that mobile phone production is likely to grow from $30 billion in FY21 to $133 billion by FY26. In fact April to June 2022, saw production of Rs 1.67 lakh crore of phones which includes exports of Rs 65,240 crore.
These massive numbers are attributable in large part to changes in the supply chain of one single company – that is Apple.
Since 2017, Apple has asked 3 Taiwanese manufacturers to move to India and that includes Wistron, Foxconn and Pegatron.
Why is Apple now looking at India? There seems to be a growing realisation that there is heavy dependence on one single geography which is China. Recent disturbances in production courtesy of the zero Covid policy and the geopolitical tensions have only strengthened this view.
Apple is increasingly seeking to diversify its manufacturing base to de-risk the supply chain and make it more resilient. And here India has been a strong performer.
Incentives under PLI have strengthened India’s hand. Moreover the robust production in India despite two waves of Covid has impressed the iPhone maker.
Apple is also likely to sell over 7 million units in India alone in 2022. However as 2022 draws to a close the figures are only set to grow from here.
FY21 saw iPhone exports of Rs 11,000 crore but April to December 2022 is likely to see exports of Rs 20,000 crore.
Looking ahead at 2023 and beyond, Apple is likely to triple its production in India over the next 3 years. In fact a JPMorgan report estimates that by end of 2022 Apple would have shifted 5 percent of iPhone 14 manufacturing to India. As per this report Apple will continue to move supply chains to India and by 2025, 25 percent of all Apple products will carry the Made in India badge.
These estimates are being backed by Taiwan based contract manufacturers increasing their exposure to India. Take Foxconn for example, it has already committed an additional $500 million for expanding production in India. It has also planned to increase its manufacturing by increasing the manpower by 4X to meet the production needs.
So what does this mean? Expect Apple to nudge its contract manufacturers to expand their current facilities and scale up production. Also expect the contract manufacturers to rope in skilled labour to align with the production cycle of Apples requirements. The large engineering pool that India boasts of may also see design, innovation and R&D functions move to India.
However industry watchers do raise a few concerns. They believe the heavy dependence on China is likely to continue for the foreseeable future as India still does not manufacture several key components. Second, the value addition that is done in China for smartphones is generally low, in fact currently it is limited to about 14 percent. Apple has 120 suppliers for its products and from them only 12 currently manufacture in India. Lastly, the timeline for releasing incentives for manufacturing is in fact running behind the curve. So far only about Rs 460 crore of incentives have been released with the likes of Samsung still awaiting clarity on their dues.
So, clearly Apple for now is betting big on India but with stiff competition from countries like Vietnam, India will have to stay on its toes to tango with Apple.