iPhone production under PLI scheme may hit Rs 25,000 crore in FY23

Apple vendors pledge 3x rise in manufacturing over FY22

In what could give a big boost to the production-linked incentive (PLI) scheme, Apple’s vendors have made a commitment of a minimum incremental production of Rs 25,000 crore of mobile devices in FY23 beginning from April 1.

The threefold jump in the commitment of minimum incremental production over FY22, in addition to a huge push in exports, will be possible thanks to the entry of Apple’s third contract manufacturer, Pegatron, which kicks off commercial production for the first time this financial year.

The new entrant has pledged to manufacture a minimum of Rs 7,258 crore in what will be its first year but when it reaches Rs 8,000 crore, it will be eligible for PLI. Along with Apple’s existing two vendors, Foxconn Hon Hai and Wistron, the three together  have also committed that 60 per cent of their production value will be exported over five years.

In FY22, Foxconn Hon Hai and Wistron have already overtaken their minimum incremental production commitment  for FY22 which was for a period of eight months beginning 1 August, 2021 and pegged at a combined Rs 8,000 crore.

As a result, they are now planning to apply to claim the 6 per cent PLI from the government. According to estimates, the two have already exported over Rs 10,000 crore in FY22, apart from manufacturing for the domestic market, though the final figures, if both are combined, could be substantially higher than their PLI commitment. It has also helped the country to push exports of mobile phones which are expected to hit $5.5 billion in FY22, a growth of 75 per cent over the previous year according to estimates by ICEA. 

The move for scale has also led the three vendors to increase capacity by enhancing their investments. They have promised the government  to have a combined investment of over Rs 3,000 crore at the end of the second year of the PLI scheme. That is far higher than the Rs 1,250 crore which they have to undertake to be eligible for the PLI in the same time frame.

In FY23 too, the three companies have the flexibility to produce more and can reach up to Rs 35,000 -Rs 40,000 crore of incremental production with a commensurately higher incentive.  An e-mail to Apple did not elicit any response.     

Pegatron will enter in the second year of the PLI Scheme but it has no base year as it has never produced iPhones in India.  Pegatron’s factory in Tamil Nadu is expected to produce iPhones 12 and 13 during the year. 

In the past, Wistron has produced the iPhone SE 2000 which was almost exclusively meant for exports. Foxconn produces a mix of iPhones 11, 12 and 13, partly for exports, but also to meet domestic production requirements. 

Over the last two years, Apple has reduced its dependency on imports drastically. Three years ago, it used to import almost 90 per cent of its iPhones sold in India. Now, it merely imports 10-15 per cent of some select models.

Yet for Apple and its vendors who have become the poster boys for the “Make in India’ programme, a lot depends on their ability to keep costs low vis-a-vis China by way of import duties on inputs and logistics costs and their ability to build and operate large format factories with nearly 40,000-50,000 workers by the end of Year 2 of the PLI scheme.   

Last December, Foxconn had to close down its factory in Tamil Nadu for over two months after women workers protested about poor food quality. Apple put Foxconn on probation until the issue was sorted out. Foxconn has been pushing for a policy framework to encourage large sized factories in India like the ones Apple has in China.