What Apple wants from India to make iPhones here: from incentives to refurbished phones, all you need to know

An inter-ministerial panel could discuss as early as next week the likely incentives US tech giant Apple would get if it wants to manufacture or assemble in India, sources said. Senior officials from the ministries of finance, industry, electronics and information technology, and commerce and environment are expected to be part of the meeting, one of the sources told FE.

Apple has sought to know the kind of incentives — tax and otherwise — it would get if it makes in India, considering the fact that it sells quality products with cutting-edge technology. The company also wants more clarity on certain issues under the modified special incentive package scheme, which is aimed at boosting electronic manufacturing in India, the source said. A company spokesperson didn’t wish to comment.

In a communication with the “highest level” of the government, Apple is learnt to have conveyed its wish list, which has been forwarded to relevant ministries such as finance, electronics and IT, and industry, for their inputs, the source said.

Currently, Apple sells its products in India through a network of local distributors and retailers. Most of the company’s items are assembled in China, usually by Foxconn Technology.
Apple has also been keen on getting permission to import and sell refurbished iPhones in India. A similar proposal by the company was rejected by the environment ministry in 2015, and even the ministry of telecommunications reportedly had some reservations about it. The industry ministry also opposed this proposal.

Earlier, the company had also sought a change in the labelling norm of the government so that the aesthetic value of its products is maintained. The inter-ministerial panel has a tough decision to make, as offering any fiscal or other incentives specifically to Apple could invite criticism from others that are going to be or have been deprived of such benefits.

Under the modified special incentive package scheme of the ministry of electronics and IT, the government offers capital subsidy of 20% in special economic zones (25% in non-SEZ) for units engaged in electronics manufacturing, among others. The benefits are available to both new projects as well as the expansion of old units.

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%. Analysts have said Apple turned to India to reverse slowing global sales, although its plan to establish retail outlets are still unclear. According to a Morgan Stanley report in April, India is expected to beat the US to become the second-largest market for smartphones next year. Earlier this year, the finance ministry had turned down an application by Apple, seeking a relaxation from the local sourcing rule for setting up its own stores in India.

Under the earlier FDI norms, announced in November last year, entities having cutting-edge” technology were promised complete exemption from the local sourcing rule. Apple had earlier applied for such a waiver, but the finance ministry rejected the proposal on grounds that such a blanket exemption would hurt the government’s ‘Make in India’ initiative, following which new norms were notified in June.

The new guidelines suggest that entities having “state-of-the-art” and “cutting-edge” technology could get a waiver from the mandatory 30% local sourcing rule for the initial three years and a “relaxed sourcing regime for another five years” once they set up their own stores in India.

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

In a bid to raise value-addition by foreign mobile handset makers in India, the Budget for 2016-17 — while keeping a 1% excise duty on domestic manufacturing (assembling) — had proposed to levy import duties on chargers, adapters, batteries, wired headsets and speakers. Such a move took the cumulative tax incidence (including basic customs duty of 10%, countervailing duty of 12.5% and special additional duty of 4%) on these products to over 29%. Finished handsets, however, attract only the CVD of 12.5%, with a 30% abatement.