India offers new incentives to Samsung and iPhone suppliers to boost local production

India’s Prime Minister, Narendra Modi recently announced that it is giving 16 smartphones manufacturing companies new incentives to boost manufacturing in the country. The Prime Minister’s target is to make India the world’s next smartphone manufacturing hub.

The 16 companies include Samsung, Austria’s AT&S, major Apple suppliers Foxconn and Wistron, and several Indian tech firms.

According to a Tuesday statement from India’s Ministry of Electronics and Information Technology, for the companies to benefit from the new incentives, they must increase their smartphone production in the country. The incentives will be between 4% and 6% of the sales of products made in India over a five-year window.

The companies must invest to benefit from the incentives. Although, the Indian government is yet to disclose how much each participant is expected to invest. A report from Reuters, citing sources familiar with the matter said Apple’s manufacturers Foxconn and Wistron, and Pegatron plan to invest almost $900 million over the next five years to benefit from the incentives.

India’s electronics and manufacturing industry is expected to generate 100 billion rupees ($1.5 billion) worth of investment from the incentive program. The government’s move to provide incentives to smartphone makers doesn’t come off as a big surprise as the industry has been booming in India. According to the India Cellular and Electronics Association, the industry is currently worth about $230 billion.

The number of smartphone manufacturing plants in India has doubled over the years as China-based Xiaomi tripled its smartphone plants in India to enable the company to secure a spot at the top of the market. In 2018, Samsung opened the “world’s largest mobile factory” near New Delhi. Since 2017, Apple began manufacturing some iPhones in Bangalore and recently started domestic production of its iPhone 11.

The statement said that Apple and Samsung “together account for nearly 60% of global sales revenue of mobile phones” and that the incentive program is expected to “increase their manufacturing base manifold in the country.”

At a shareholders meeting in June, Foxconn Chairman Liu Young-Way said the company had plans to further its investment in India. The firm already has a manufacturing plant in India where it manufactures smartphones for Apple and other brands.

The incentives program comes as a stepping stone for Apple, as it holds less than 2% of India’s smartphone market. The smartphone giant has since, sought ways to grow the percentage and increase its presence in India. Prior to the announcement of the incentives, Apple launched an online store in India, and further plans to launch a physical store next year.

One of the reasons why smartphones like Apple do not have much patronage in India is because of the price differences. Most iPhones are too expensive for the average Indian, and due to taxes and local currency strength, the prices of iPhones are quite higher in certain countries. The 64GB variant of the iPhone XR model costs about $120 more in India compared to its actual cost in the U.S. Therefore, boosting local smartphone production would take out the heavy import taxes and potentially make iPhones cheaper in India.