Apple demands exemptions, but govt shouldn't offer a sweet deal

While Apple's big Peenya plans, hinting at got us all excited, there’s no concrete announcement so far. Now, it’s been a while that we've been hearing about how Apple and the Indian government have been negotiating over latter's plans to assemble and then eventually manufacture in India.

 

Before we proceed with what Apple wants from the Indian government, if it’s really a ‘deal done’ and what we can possibly gain, let's take a look at why India is suddenly such an important market for Apple.

 

Why Apple wants to Make in India

So, we were never the apple of Tim Cooks’ eyes, until recently. The once dumping ground is slowly turning into a lucrative market for two reasons – Apple’s dipping iPhone sales and India’s accelerated growth as a phone market.

 

Image: PTI

The company witnessed its first ever dip in iPhone sales in over a decade as the developed markets are stagnating, which essentially means the company has to open newer avenues – developing nations.

 

Tim Cook who happened to mention India in earnings call called it one of the fastest growing markets for the company. It said India is where China was 5-6 years ago.

 

Tim Cook, unlike ever before, visited India to meet PM Modi and also decided to start the trip with a visit to the Siddhivinayak temple. It was around the same time we heard about Apple's mapping unit in Hyderabad and the 50,000 sq ft office space on lease in Bengaluru.

 

The company is also encouraging developers to build apps for iOS. So, Apple is looking for a gateway into India which is a predominantly an Android nation. The Apple Stores are a way to bring the iOS experience to users to eventually convert potential users into paying for the devices and other Apple products.

 

After the failure of 5C, the company probably realised that we are more value conscious rather than price conscious. However, Apple’s huge price tags have been a hindrance. Manufacturing in India could help the company cut down the price of the devices slightly (more on this later).

 

What Apple wants from the Indian government to start manufacturing?

Besides exemption from the Customs duty on imports of components and equipment for 15 years, Apple wants relaxation in the mandated 30 per cent local sourcing of components. 

 

Apple met Indian officials on 25th of the month and to put forth its key demands including Countervailing duties (CVD) exemption. It essentially wants the present CVD on the import of components, which means mobile phone components exempted from CVDs. However, a GadgetsNow report that no matter how much the Centre wants apple to start manufacturing, it will require support from States too.

 

So, imports will face integrated GST in place of countervailing duty, adds the report. And, exemptions under GST will have to be decided by the GST council. "CVD is levied as part of import duty, but states have made clear that as it's in lieu of excise duty they want a say in what will be taxed and what will be exempt," the report states.

 

So basically, Apple is looking for the government's assurance on the CVD exemption to continue for the next 15 years. It fears that in the future to push domestic manufacturing, it may impose countervailing duties.

 

That’s not all. It is looking for further relaxations under M-SIPSS, which means allowing ‘second hand capital goods imports of up to 20 percent of the total investment’.

 

Other changes it is looking for is manufacturing under excise duty and easy labelling.  Now, it was known that Apple has requested for relaxed labelling, which means the company doesn't have to add product related details on the packaging.

 

Will Apple get what it wants?

‘Yes’ seems like the answer at this point. An official WSJ that it’s almost a ‘deal done’.

 

Now, the question is does only Apple get a differential treatment? Well, it most likely can’t and won’t. The changes should be applicable to all phone vendors.  And, many have voiced their opinions on the same. This ETTech report reveals that other phone makers like Huawei and OnePlus who have asked for a level-playing field. This means the sops should be extended to all companies working with the Make in India program, and not just limited to Apple.

 

If you remember despite of the 30 percent relaxation in norms, Apple had asked for further exemption on the ground of 'state of the art' and cutting edge tech'. This was initially rejected but the policy changed after Tim Cook’s visit to India.

 

Moreover, the new norm also enabled single-brand retail trading (paved way to Apple Stores, and also others like Xiaomi, LeEco and OnePlus) and exemption from local sourcing norms for state of the art and cutting edge tech with a waiver for three years that can be extended to five years. Overall, we expect the changes to be applicable to all.

 

India shouldn’t settle for a raw deal

While Apple coming to India would bring value to the local economy and create more jobs. The problem arises if Apple plans of never sourcing components locally. This could mean others may follow the same route, and what essentially is considered a step towards manufacturing would simply turn into a step backwards.

 

It is only the rise in locally sourced components that will eventually cut down costs further and help build our manufacturing ecosystem. Phone companies are assembling in India, and manufacturing as we don't have the ecosystem like China. 

 

Another issue arises if Apple plans to not export products, as hinted by reports earlier. This means Apple will build products in India, but only for the Indian market. This means it won’t really lend a helping hand at making us a export hub that could further help drive manufacturing here. However, the WSJ claims that Apple 'could see India as an export hub'. Now, if Apple demands clarity over rules, we should also demand clarity over what it means by 'could see’.

 

The aim should be a step towards creating an ecosystem for manufacturing, which will help generate more jobs in the future. This may not necessarily be possible if Apple’s every demand is met. It could benefit only Apple, and not the country. Apple needs us as much as we need them, and the government should ensure we don’t get a raw deal.