India is drafting a new set of smartphone manufacturing incentives that would link government subsidies to exports and broader use of domestically made parts, in a move that could benefit Apple (AAPL), Samsung Electronics (SSNLF), and their suppliers, Reuters reported, citing people with knowledge of the matter.
The scheme — effectively a second phase of India’s flagship phone manufacturing program — will start rewarding companies for shipping devices abroad, the report added.
Unlike the current Production-Linked Incentive, or PLI, program, which ends March 31 and is mainly focused on incremental local output, the new plan explicitly ties benefits to exports and localization, according to the report.
The proposal framework, size of the incentives, and the overall budget are still being finalized and could change during the inter-ministerial consultations, the report noted.
The incentive revamp underscores the iPhone maker’s growing importance to India’s electronics objective. Apple’s contract manufacturers account for about three-fourths of the country’s smartphone exports, helping transform India into one of the world’s fastest-growing handset export hubs. The company intends to ship most U.S.-bound iPhones from India by year-end, the report added.
Major contract manufacturers for Apple in India include Foxconn (FXCOF) — which is formally known as Hon Hai Precision (HNHAF) (HNHPF) — Tata Electronics, and Pegatron.
With roughly every smartphone sold in India now assembled domestically, officials think the initial incentive program has largely met its objective of satisfying local demand. Policymakers are now moving focus to higher value addition as the next stage of the strategy beyond just assembly, the report noted.
The Indian government is also looking to ask Chinese smartphone brands such as Oppo, Vivo, and Xiaomi — all of which mainly make in India for the local market — to use the country as an export base, the report added.
Tying benefits to overseas shipments in its flagship PLI policy is seen as a way to embed India more deeply in the global supply chains. This comes at a time when companies are thinking of diversifying their manufacturing footprint to tackle geopolitical risks.
A second vital feature being discussed is heavy indexation to localization. Incentives are likely to be tiered based on the extent of domestic value addition in each device rather than simple assembly. Manufacturers may get additional benefits for sourcing parts like camera modules, display assemblies, and other sub-parts from Indian suppliers, the report added.
Devices which meet higher localization thresholds and are exported may receive the maximum subsidy, as per the report.
Apple’s expansion in India has been constrained by a thin supplier base that can meet its quality standards, higher logistics costs, and the challenge of matching China’s scale and efficiency, the report added.
India has successfully attracted large-scale assembly for brands including Apple and Samsung, but high-value components — like semiconductors and advanced modules — continue to be imported from countries including China, South Korea, and Taiwan, the report noted.
The new incentives are expected to align with India’s Electronics Components Manufacturing Scheme, which intends to promote domestic production of parts and sub-assemblies.
Since the current PLI program for smartphone assembly ends this month, companies have been looking for clarity for months on the new version of the incentive program to make plans for India exports, the report added.
Apple and Samsung did not immediately respond to a request for comment from Seeking Alpha.