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Level field: Apple may not get special package for local manufacturing of iPhones

Banikinkar Pattanayak
Making in India, Apple, MEIS, income tax relief on exports, Suresh Prabhu, World Economic Forum

The government is unlikely to commit on any special package for US tech giant Apple or its contract manufacturers for setting up a large facility in India. Instead, an incentive plan in sync with various extant schemes meant for promoting domestic manufacturing could be hammered out, which can be tapped by all like-minded players, an official source told FE.

The iPhone maker is learnt to have asked the government for assured incentives for five years under the Merchandise Export from India Scheme (MEIS) and income tax relief on exports, having revised its 2016 proposal in which it wanted a raft of concessions, including a 15-year customs duty holiday on a range of items. Apple has a negligible market share in India, so it is looking at setting up a base here for exports.

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Since the tech giant doesn t make its own products it is through contract manufacturers including Wistron, Foxconn and Pegatron it wants incentives for such firms that may otherwise be unwilling to set up a base here if they have to import too many components to make iPhones, said another source.

Reports had suggested that commerce and industry minister Suresh Prabhu would huddle with top Apple executives on the sidelines of the World Economic Forum meeting in Davos later this month, but such a meeting is unlikely now.
The government doesn t intend to favour one company over the other, so no special dispensation for any company can be granted. Nevertheless, the government is very much keen on getting Apple to have a large manufacturing base here, the source said.

So, the company s demand for incentives may be reconciled with existing schemes, including Make in India, MEIS and the phased manufacturing programme (PMP) for electronics manufacturing, he added. Apple has already started the assembly of iPhones in India (Phone SE in 2017 and iPhone 6s in 2018) through Wistron at its Bangalore unit. However, the likelihood of a larger manufacturing facility in India hinges on the kind of concessions the Centre would offer to the tech giant.

Under the MEIS, the government provides exporters duty credit scrip at 2%, 3% or 5% of their export turnover, depending upon products and export destinations. Close to four dozen companies are manufacturing/assembling mobile phones in India, including Chinese firms Huawei and Xiaomi, as India is one of the best places to set up units now. So, the government is mindful of the fact that offering incentives specifically to Apple could invite criticism from others that are going to be or have been deprived of such benefits.

Of course, MEIS benefits are not just for Apple but for all companies that wish to export a whole range of stipulated products, including electronics. However, the tech major is learnt to be seeking an assurance that such benefits won’t be scrapped for at least five years, said one of the sources.

Earlier, even Chinese smartphone makers Xiaomi and LeEco had applied for a waiver from the mandatory 30% local sourcing rule. But later, they told the government that they would abide by the sourcing requirement and withdrew their applications, amid speculations that such a relaxation was hard to come by.

The average value addition in the assembling of mobile handsets in India by foreign players is less than 10%, although in a very few cases, it goes up to 30%. Apple had earlier sought a 15-year customs duty holiday on imports of iPhone kits, new and used capital equipment and consumables and duty cuts on components completely knocked down (CKD) and semi knocked down (SKD) units of iPhones for re-assembly at the finished goods manufacturing line. It also wanted exemption from the PMP that is chargers, batteries and headphones for manufacture of Apple phones be exempted from import duties. It also wanted a waiver from the local sourcing rule, which was rejected by the finance ministry.

The tech giant turned to India, the world s fastest-growing smart phone market, to reverse slowing global sales. With cost of production in China rising due to soaring wages, among others, Apple is perhaps looking at diversifying its manufacturing base out of China, analysts have said.