India’s ambitious Production-Linked Incentive (PLI) scheme aimed at increasing and supporting smartphone manufacturing within the country has seen significant progress but also some hurdles in its implementation. 

As per recent reports, Apple Inc.’s three contract manufacturers in India – Foxconn (Hon Hai), Wistron (now owned by Tata group), and Pegatron – along with South Korea’s Samsung and homegrown electronics company Dixon Technologies are said to receive incentives totalling more than ₹4,400 crore for meeting targets in FY23. 

The incentive is part of the government’s larger initiative to promote domestic manufacturing in the smartphone sector.

However, the full utilization of the originally planned outlay of ₹6,504 crore for FY24 seems unlikely due to some of the selected companies failing to meet the production targets stipulated in the scheme. 

Officials familiar with the details have revealed that companies receive incentives a year after achieving targets, and those exceeding the targets can claim additional benefits from the residual amount not utilized by firms that missed their targets.

Among the global firms, Rising Star (Bharat FIH), a smartphone contract manufacturer for China’s Xiaomi, has struggled to meet the PLI targets since the scheme’s inception in FY21. 

Similarly, Indian companies like Lava and Optiemus Electronics have also faced challenges in meeting the PLI targets, potentially impacting their eligibility for incentives, according to officials.

Despite these challenges, there is optimism among stakeholders. 

As one official noted, with four out of five global firms meeting targets in FY23, the disbursement of incentives in FY24 is expected to be the highest yet under the scheme. The government has already released around ₹2,500 crore under the scheme, with notable disbursements to Samsung and Apple’s contract manufacturers.

Samsung’s recent filing for claims under the scheme for the third year underlines the company’s commitment to leverage the PLI incentives. 

Likewise, other players are also gearing up to claim benefits for their respective performance years. 

The incentives for FY23 are based on targets achieved in the last fiscal year, reflecting the scheme’s retrospective nature.

The Positive Step

The impact of the PLI scheme on mobile phone exports has been substantial, with exports reaching $10.5 billion during April to December 2023. 

The surge in exports shows the scheme’s role in boosting India’s position in the global electronics market; industry experts predict further growth, estimating mobile phone exports to reach $14-15 billion by the end of the current fiscal year.

The PLI scheme offers graded incentives, providing cashbacks based on incremental sales of goods over a five-year period. 

However, while there is a slight reduction in the scheme’s overall financial outlay, the reallocation of funds to the IT hardware scheme indicates the government’s commitment to fostering domestic manufacturing across various sectors.

Companies must meet stringent investment and production requirements over the scheme’s duration to qualify for incentives to incentivize substantial investments in manufacturing infrastructure and drive high-value mobile phone production within the country.

Since its inception in FY21, the PLI scheme has undergone amendments to address challenges faced by beneficiaries in meeting targets, with Samsung being a notable exception. 

Apple’s India Story

Meanwhile, Apple’s foray into Indian markets is set to achieve a significant milestone, with projected revenues surpassing Rs 70,000 crore by the end of the fiscal year ending in March. 

The achievement now places Apple as the second electronics brand to reach this landmark in the Indian market, following its South Korean rival Samsung.

Industry sources reveal that Apple India crossed the $8 billion (Rs 66,000 crore) sales threshold in February, marking the second consecutive year of over 40% growth for the iPhone maker. 

Analysts anticipate a continuation of robust growth, albeit at a slightly slower pace in the coming years, maintaining high double-digit figures.

The reported figures primarily represent domestic sales, with iPhones constituting a substantial portion, accounting for 90-92% of total sales. 

Notably, iPhone exports are not factored into Apple India’s financial records, as these transactions fall under global deals and are managed by the company’s international units.

In the fiscal year FY23, Apple India recorded sales amounting to Rs 49,321 crore, marking a notable 48% increase compared to the previous year. 

Meanwhile, the net profit surged impressively by 76% to Rs 2,229 crore, as per filings with the Registrar of Companies (RoC). 

In contrast, Samsung India reported sales of Rs 98,924 crore in FY23, with its mobile phone segment contributing Rs 70,292 crore to the total. 

The net profit for Samsung India in FY23 stood at Rs 3,452 crore, as per RoC filings.

India VS China

Apple’s forthcoming strategy involves starting the manufacturing of its next iPhone model in India simultaneously with its vendor plants in China and other locations. The preparation for trial production at Indian plants is currently underway, with the new iPhones typically slated for launch in September. 

Foxconn, Pegatron, and Tata-owned Wistron are the three contracted manufacturers responsible for iPhone production in India. 

Notably, these manufacturers collectively produced iPhones worth over Rs 1 lakh crore in India during the calendar year 2023. However, it’s worth mentioning that the higher-spec Pro models will not be manufactured in India for now. 

An executive attributed this decision to both the relatively lower demand for the Pro series in India and Apple’s strategic approach to gradually enhancing the technical capabilities of its manufacturing partners.

Global Tech Giants Growing Optimism In India For Electronics Production

India’s vision of emerging as a global electronics manufacturing hub has been in the works for long, but it hinges on a crucial factor – establishing component manufacturing units within the country as it will lay the groundwork for the electronics manufacturing and chip industry to flourish significantly. 

Notably, Apple’s primary suppliers, Foxconn and Pegatron, already boast substantial operations in India. Additionally, Wistron, another key supplier, has partnered with Tata Electronics to enhance its capabilities in contract manufacturing of high-end electronic products and accessories. 

Hence, the momentum is building, with more companies expressing interest in India’s manufacturing sector.

Investments Come Calling

Apple’s supplier Corning has committed to establishing a new facility for cover glass manufacturing in Tamil Nadu, with an investment of Rs 1,000 crore. 

Similarly, Rayprus, a specialized lens maker and a subsidiary of Foxconn, is reportedly considering entering the Indian market. 

Thus, these developments signal a shifting tide in India’s favour, spotlighting the nation’s growing expertise in manufacturing.

To put it into perspective, existing suppliers are also ramping up their investments in India – Foxconn, for instance, recently announced a whopping Rs 1,200 crore investment to build a new factory in the country. 

Additionally, the company plans to inject $2.7 billion into its Karnataka facility, with iPhone production slated to commence by April 2024. 

Tata Electronics, Apple’s sole Indian vendor, is also scaling up its operations, with plans to expand its Hosur facility and acquire the Wistron facility in Karnataka. 

These initiatives reflect a concerted effort to strengthen India’s electronics manufacturing ecosystem and increase value addition in the sector.

The Growth, Supply Chains And The Reasons

The surge in mobile phone production, from 60 million to 310 million units between 2015 and 2022, shows the sector’s rapid growth, and companies are focusing on strengthening the supply chain, transitioning from mere smartphone assembly to producing a broader range of components within India.

The COVID-19 pandemic and recent geopolitical shifts have accelerated these developments. 

Companies and governments are increasingly becoming wary of relying heavily on a few countries for critical supplies; as a result, global brands like Apple are diversifying their production bases, with India emerging as a favourable destination. 

The emerging trend aligns with the global preference for resilient supply chains anchored in reliable democratic countries.

Meanwhile, industry experts state the importance of iconic companies like Apple in driving ecosystem development; as Apple and other global players establish their presence in India, local companies are poised to follow suit, further enriching the electronics manufacturing ecosystem.

However, achieving complete localization in component production poses challenges despite the positives. While India offers significant growth potential for iPhone sales, replacing certain specialized components remains a formidable task. 

Nonetheless, India Cellular and Electronics Association (ICEA) chairman Pankaj Mohindroo sees tremendous opportunities for Indian companies to contribute to the mobile phone value chain, particularly in areas like camera module production.

The Last Bit, the PLI scheme has shown promising results in incentivizing smartphone manufacturing and boosting exports, yet some challenges remain in ensuring all beneficiaries meet their targets. 

When it comes to the potential of India’s electronics manufacturing sector, it extends beyond traditional players, presenting an enticing opportunity for non-electronic companies to venture into the industry. 

As the sector evolves, a collaboration between global giants and local enterprises promises to drive innovation, scale, and robustness in India’s electronics manufacturing ecosystem, as does government initiatives like the PLI scheme – this iterative approach cements the government’s responsiveness to industry dynamics and its commitment to promoting a strong manufacturing ecosystem in India.