Why 30% localisation an uphill task for Apple under PLI scheme in India

India has hit a domestic value addition (DVA) of an average 20 per cent in mobile phones under the production-linked incentive (PLI) scheme, the government announced for the first time on Tuesday. Its aim, based on commitments made, is to hit 35-40 per cent by the financial year ending March 31, 2026 (FY26), which is the last year of the PLI scheme, or double this number.  

A striking feature of the figure is that Apple, which began operations in India only 22 months ago, accounted for 50 per cent of India’s $11-billion smartphone exports. Under the PLI scheme, its vendors need to reach 29-30 per cent DVA – up from the current 15 per cent, though it varies from model to model — and that might not be easy to achieve, say experts. 

Apple’s vendors have localised chargers, batteries, printed circuit board assembly (or PCBAs), enclosures, and coils, to name a few.      

According to BofA Research estimates (which are endorsed by vendors), around 70 per cent of an iPhone’s cost comes from the memory, processor, display and camera module, and these have to be imported, so localising even further may take longer than the PLI deadline.

An Apple spokesperson did not respond to queries on the article.

The reason why localisation takes time is because it requires large capital investments, manufacturing is a complex process, and high-end technology and input reliability is required, according to BofA Research.

Alternatively, Apple’s vendors — Foxconn, Pegatron and Wistron — could simply bring in their global supply chain, most of which is in China, and come and manufacture in India and consequently increase the value addition.

But such a scenario is unlikely after India imposed restrictions under its foreign direct investment (FDI) policy, which made it difficult for Apple’s vendors to get permission owing to the geopolitical tensions between the two countries following border skirmishes.

As a result, Apple is focusing on home-grown companies to be part of the supply chain, say analysts, and cite the example of the Tatas who are in talks with Apple. But this too takes time as most Indian companies (even those who have the money) will require support from the government, or a separate PLI scheme for components. Without the technology, the DVA will be slower.

Sources in the government say that Apple is in talks with a host of Indian companies to build a home-grown supply chain. Take the Tatas. They already provide the mechanical parts for iPhones and even export to China. But it took 3-4 years and substantial investments for the group to reach that stage.

The government recently relaxed its rules on disallowing Chinese companies to come to India, which was specifically focused on mobile device makers. But most mobile companies say the concession has not made much of a difference.

The Indian government asked Apple to provide a list of Chinese vendors that would like to come to India but with one caveat — they will have to enter into a joint venture (JV) with an Indian partner holding a majority stake.  A dozen such companies were cleared for the next stage, namely to find a JV partner and then apply for FDI.

But sources aware of the matter say the policy has got off to a slow start because many Chinese companies have chosen to stay away given the current tensions between China and India.