Concessions for Apple depend on its value-addition
Given a top team from Apple Inc is flying in later this month for another round of talks with government, it would appear the consumer electronics giant remains keen to set up shop in India. The perseverance is not surprising given the size of the Indian market where smart phone penetration is expected to be 700 million by 2020, from the current 250-300 million right now. If Apple’s discussions with the government have not crystallised into any investments so far, it is because the US multinational is believed to be looking for concessions which the government hasn’t been ready to part with. Some parts of the concessions reportedly asked for—a 15-year duty-free import window, for instance—make sense since, with GST around the corner, the current preferential countervailing-duty-based concessions will be available only for a short while more. This, in fact, is something the entire industry wants, and the sooner the government announces its post-GST incentive plan, the better. Import duty concessions on capital goods, similarly, is something the entire industry would be looking for.
It is after this, that the government needs to be careful, no matter how keen it is to have a top brand like Apple invest in India. If Apple wants concessions to be able to sell refurbished—or re-manufactured, to use trade jargon—phones, this has already been turned down by the government. Apart from the proposal being environmentally hazardous since it will create e-waste, it is important not to make India a dumping ground for products that are not saleable in other markets. That apart, allowing Apple to sell refurbished phones would be patently unfair to the several companies that have set up manufacturing facilities here to make phones—even if, at the moment, there is relatively low value-addition here except in a few cases.
If Make-in-India is to be a success, the government must encourage manufacturing in its true sense; there must be meaningful value addition and employment generation. This means, for instance, a schedule for withdrawing of duty concessions on various component imports—removing chargers and headsets from this concessional-duty list last year, for instance, forced firms to actually make them in India since they would have had to pay higher tariffs on the imports; another five items are to be removed this year. If the government was to agree to duty-free imports of all components—as Apple has reportedly asked for—for 15 years, this will mean there will be little value addition in India though the phones will technically be ‘manufactured’ here. If, however, Apple is willing to create manufacturing capacity, mostly through third-party manufacturers, where there would be significant value addition, the government could look to offering it concessions which would then also need to be passed to any other company doing similar value addition. It cannot merely ask for lower duties, whether on components or CKD kits, on the basis that its technology is ‘cutting edge’. Apple may well have cutting edge technology, but that must be put to use to make phones here.