Apple demands for tax concessions and sops could adversely affect Make In India campaign

According a report in Business Standard, a senior commerce minister has stated that Apple's growing demands for concessions, something that no other company making in India is asking for, could put some brakes to its plans.

In the last week of 2016, news trickled in that Apple plans to start making iPhones in India through its contract manufacturer Wistron in a Bengaluru plant. Since then, there have been developments such as Wistron requesting for an expansion in its facilityBut it seems like there are fresh impediments that could crop up with Apple's iPhone making plans in India.

According a report in Business Standard, a senior commerce minister has stated that Apple's growing demands for concessions, something that no other company making in India is asking for, could put some brakes to its plans. In addition to the exemption from local sourcing demand, Apple has requested for tax breaks and concessions with labelling requirements, according to sources.

It is said that the finance ministry is looking into the tax-break demand. Other demands are being looked at by an inter-governmental panel made of senior officials from department of industrial policy and promotion (DIPP) and department of electronics and information technology (DeITY) at a meeting scheduled for later this week.

Could set a bad precedent

Apple has been identified as a company which brings in 'state-of-the-art' and 'cutting-edge' technology. So it has got the exemption from the 30 percent local sourcing rule for the first three years. Thereafter, according to the rules, the following five years the company has to meet the 30 percent local sourcing rule. But Apple, being Apple, wants an indefinite exemption from this domestic sourcing rule.

Apple demands for tax concessions and sops could adversely affect Make In India campaign

The iPhone 7 Plus.

The 'indefinite' clause could not bade well for boosting local electronics component manufacturing in the future. Currently, the eco-system of internal smartphone component manufacturers in India is not really in a great shape. There has to be a start somewhere. But if Apple and eventually other companies start demanding indefinite exemption when it comes to local sourcing, then there will be no opportunity for India to be an end to end solutions hub.

If special exemptions are made just for Apple, then it is not really fair on other smartphone makers who are already making their phones in India. If the 'Make in India' principles are uniform for all the existing smartphone makers, I don't see why special treatment should be meted out to Apple.

Initial reports have hinted that Apple has no plans to make dual SIM phones - which accounts for 80 percent of all phones sold in India. Also the phones made in India will be sold only in India, unlike Samsung who exports products made in India. If such a local demand is nowhere in Apple's list of priorities for the Indian market, why then should the government offer additional sops?

Currently, under the Modified Special Incentive Package Scheme (MSIPS) to promote electronic manufacturing subsidies are provided. There is 20 percent capital subsidy in special economic zones (SEZ) and around 25 percent in non-SEZs. Handsets made locally only pay a 1 percent duty charge as opposed to imported devices which play 12.5 percent duty. In addition, if a smartphone maker purchases battery, adapter and headsets locally, it pays only 2 percent duty instead of 12.5 percent when these components are imported. And many global smartphone makers are fine with these sops and going ahead with their Make in India projects. Apple demanding things over and above this, despite getting a breather with the local sourcing clause for three years, seems like a classic case of asking for too much too soon.

Cook's India focus is evident

Tim Cook meets Modi in 2016.

Tim Cook meets Modi in 2016.

Apple CEO Tim Cook in his May 2016 visit to India said in no uncertain terms that India is an important market for the Cupertino based company. He announced Apple's first development centre in Hydreabad to work on Apple Maps and an app design and development centre in Bengaluru to boost Indian developers working on the iOS platform. He has followed this up with statements concerning exciting developments in India in his earnings call with investors. Apple is focussed on growing in India - it saw a 56 percent uptick in India revenue as compared to a 10 percent dip in China.

Bitter fact: Apple needs India, more than India needs Apple

The developments that have happened between Apple and India in the last year, clearly point to one fact: Apple needs India more than the other way round. I have been covering technology for many years now, and never had there been a concerted effort to push the brand in India by Apple top management. India is yet to figure in the list of countries where iPhones launch around the same time as their US launch or close to it.

Samsung make for India

Korean and Chinese smartphone makers are making hay in India, with Apple's rival Samsung enjoying a massive 23 percent market share – which is almost 20x that of Apple share. It has been making products in India for around 20 years now and is quite a popular brand in the country. Chinese smartphone makers have successfully created their own niche and are showing growing sales. Many of them such as Xiaomi, OppoHuawei, LeEco, Vivo, Gionee, OnePlus and others have already started assembling operations in India. Taiwanese smartphone makers HTC and Asus have also started making smartphones in India. Then you have a thriving local smartphone makers such as Micromax, Intex, Karbonn, Lava which enjoy the entry level and mid-range markets in the Tier II and Tier III towns.

If we talk numbers: there are around 275mn smartphone users, 500mn feature phone users and 370mn internet users. A Morgan Stanley report in May 2016 hinted that India would become the no 2 smartphone market in the world in 2017,  but by October 2016, India had already crossed the US to be the second largest smartphone market. For a country whose population is 1.25bn, these numbers indicate tremendous growth potential. The Morgan Stanley report hinted at Apple acquiring a 5 percent market share in 2017-18, up from 1.1 percent in 2016.

I could give more numbers, but I think the point is clear.

India is a very different market from other developed markets such as the US and Europe. By his own admission, Cook has mentioned that India is today where China was seven years ago. Post that statement, if Apple makes demands which do not add value to the local manufacturing eco-system in India, then that is not really fair and defeats the purpose of Make in India. Since Apple has no plans to sell smartphones globally, from the ones which it makes in India, a three-year time frame to gather 30 percent local sourcing partners, isn't that tough a task for Apple.

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