India still sits as the world’s second-largest smartphone market. Interestingly enough, the country managed to overcome smartphone sales decline in the past years. However, it’s facing one of its major challenges this year due to the ongoing COVID-19 pandemic. The country is now increasing its efforts to incentive smartphone makers to expand local production. On May 29, the country’s Production Linked Incentive Scheme (PLI) program met and decided to remove and alter a few important clauses in the market.
The effort is clearly aiming at bringing more US investment, mainly by making India more attractive as a partner in the so-called “China plus one strategy”. In other words, many companies are trying to leave China in recent months, since the country has been steadily making its workforce more expensive. Many smartphone makers are shifting parts of production to other, more-competitive, Asian countries like Cambodia, Vietnam, and Thailand. That is the “plus one” part in the long-standing Chinese manufacturing setup. The trade war surely is one of the reasons behind recent changes in the market.
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India is loosening the rules and expanding benefits
The Empowered committee voted for the removal of a rule, which evaluated plant and machinery brought into the country at just 40% of its value. Other caps to the government PLI incentives have been altered as well. That includes some potentially worrying clauses that could previously enable the local government to not release incentives to companies. Moreover, the committee also made some amendments to PLI rules as lowering the excessive amount of business information the beneficiaries had to send to the government. It also changed some of the investor’s rules.
Currently, the PLI is an incentive of around 4% to 6% on incremental sales of goods manufacture in India. It comprises the under target segments, to eligible companies, for a period of five years. If a company wants to benefit from the incentive, it needs to manufacture high-end smartphones. In the first year, it needs to surpass INR 4,000 crore. In the second the requirement is INR 8,000 crore, 15,000 crore, 20,000 crore, and 25,000 crore, for the next four years, respectively. If you’re unaware, 1 Crore is equal to INR 10,000,000 which is around $132.409.
One of the first companies to benefit from the new PLI conditions could easily be Apple. One of the main catalysts of the new rules is negotiating with the Cupertino-based firm. Currently, the company has its contract manufacturers Wistron and Foxconn shifting a significant portion of iPhone production to India. The very same situation applies to Pegatron, a 3rd Apple partner. The iPhone maker may be an important piece to reinforce the new Indian strategy.
After Apple, we could easily see Samsung doing the same.