Apple’s ambitious strategy to expand iPhone exports, shift more production from China to India at a faster pace, and grow its domestic market hits a Trump-sized roadblock.

Photograph: Kind courtesy, Mike Cuvelier/Pixabay

After a roller-coaster ride for four years, Apple Inc is at a crossroads in India.

The Cupertino-headquartered technology giant has seen heady growth — both in iPhone exports and domestic sales — which is projected to shift nearly 15 per cent of its iPhone production value from China to India by 2024-25 (FY25).

That is well ahead of its earlier, more cautious target of hitting 10 per cent in five years by 2025-26 (FY26), a goal it overshot in just three years (reaching 12 per cent).

But it faces serious headwinds — challenges that were non-existent just a month ago in its global strategy.

Just a few days ago, US President Donald Trump upset the applecart with the announcement of reciprocal tariffs on several countries, including India.

Once implemented, these tariffs would make iPhones more expensive — and more expensive for export from India to the US, the largest market for Apple’s smartphones.

This could slam the brakes on Apple’s ambitious strategy to expand iPhone exports, shift more production from China to India at a faster pace, and grow its domestic market.

Apple has been the poster child of Prime Minister Narendra Modi’s production-linked incentive (PLI) scheme, launched in 2021.

It exported over ₹1 trillion in free-on-board value of iPhones in just 10 months (April–January, FY25), hitting the magic number for the first time in a single year.

With iPhone exports booming, smartphones have emerged as India’s second-largest export category between April and November FY25, based on Harmonized System (HS) codes — overtaking aviation turbine fuel and trailing only automotive diesel fuels.

IMAGE: Apple CEO Tim Cook. Photograph: Robert Galbraith/Reuters

But it’s not just about exports.

From a minor player in the domestic market in 2020, Apple, on the back of Make in India iPhone production, has seen revenues cross ₹67,000 crore in 2023-24 (FY24) — a 35 per cent growth over the previous year.

This catapulted the company into India’s top five smartphone brands for the first time in the fourth quarter of last year in terms of volume, despite having the highest average selling price among competitors.

The question now is: Can Apple push the pedal further and take its India play to new heights despite the fresh challenges posed by Trump’s policy shift?

JP Morgan has projected that Apple will be able to shift 25 per cent of iPhone production to India by the end of the PLI scheme (FY26).

Discussions with vendors suggest that nearly a third of global iPhone production — 26 per cent by value — might be assembled in India by 2026-27, just a year after PLI ends.

That would translate into a production value of $36 billion, assuming global iPhone sales remain at FY24 levels.

In the domestic market, Counterpoint Research estimates that Apple’s iPhone volume share will rise from 7 per cent in calendar year 2024 to 10–11 per cent as the company brings in more affordable ultra-premium models, such as the planned India-assembled iPhone 16e.

Yet, all these plans could go awry.

On the export front, India imposes a stiff 16.5 per cent duty on smartphone imports, while the US has none.

If the US imposes a similar duty, iPhone exports from India could become unviable, forcing the company to look to other countries for sourcing phones.

Surely, in China, which has no duty on smartphone imports, Trump’s recent announcement of imposing an additional 10 per cent tariff on Chinese goods (over and above the 10 per cent imposed just a few weeks ago) — including smartphones — going to the US gives India an advantage of around 3.5 per cent in tariffs.

But experts say the China market is very different from India in size and maturity of the manufacturing ecosystem.

One, it still accounts for over 85 per cent of iPhone production with a vibrant local supply chain with scale, which supports iPhone assembly at a lower cost.

To replicate a similar model will take years to happen. For instance, it took Samsung decades to shift its mobile production from China to Vietnam.

Two, despite the slight tariff advantage, India, despite the PLI, has a cost of production disability over China for iPhones, which currently is at 6-7 per cent. So it can still churn out iPhones cheaper than India.

The US is a crucial market, accounting for 50–55 per cent of iPhones exported from India. Plans were in place to scale up exports rapidly, with smartphones already ranking as India’s largest export to the US by HS code, at $4.18 billion — overtaking non-industrial diamonds.

Meanwhile, the third-largest iPhone market, China, is closed to India since iPhones there are supplied locally.

This effectively shuts out over half of Apple’s key geographies for India-assembled iPhones, leaving only Europe, Africa, and parts of Asia as viable alternatives.

In that scenario, Apple would have to redirect iPhone exports from the US to other markets, such as Europe, but the scope is limited, and this would stymie growth.

A senior executive from an industry association representing mobile manufacturers says, “If reciprocal duties are imposed by the US, Apple’s growth story in India will clearly slow down. They might look at shifting capacity to other countries — Vietnam (which again has no import duty), where Apple Inc makes iPads and wearables, or in Association of Southeast Asian Nations (Asean) member states, which also have no duty on imports.”

Not only that, Chinese suppliers and vendors like Foxconn could also shift production to this region (which they are already doing) and export the phones at zero duty from Asean or Vietnam to the US, avoiding the tariff imposed by Trump on China.

However, he adds that the situation also presents a big opportunity for India — if the government scraps the duty altogether.

“Reciprocal duties don’t make sense for the US, as it doesn’t manufacture phones at all. If India removes the import duty, it would gain a 20 per cent tariff advantage over China, bringing it on a par with Asean countries, hastening the shift of iPhone production to India — a win-win for all.”

Hectic parleys are reportedly underway between the government and stakeholders. Sources say companies are urging the government, as they have in the past, to reconsider the duty, arguing that with 95 per cent of smartphone production already happening in India, the tariff serves little purpose.

The duty hasn’t fostered many strong home-grown brands capable of becoming “export champions” as envisioned under the PLI policy.

Of course, the challenge is that iPhone exports are only a part of a broader plan between the two countries, which are looking at signing a bilateral trade agreement that includes many other sectors like pharmaceutical, steel, automotive, and gem and jewellery.

And a curveball thrown by Trump is that India needs to buy more from the US — so that the yawning trade deficit they face is reduced, if not bridged altogether.

Without a bilateral offering zero duty on smartphones only to the US, it would not be in compliance with World Trade Organization rules, where the same tariff prevails across all countries until they sign free trade agreements or other bilateral agreements.

On the domestic front, Apple’s expansion strategy remains on track. The company has launched what it calls a “premium affordable” iPhone — the iPhone 16e — on February 28 to expand its customer base. Priced at ₹59,999, it will be assembled in India for both local sales and select export markets.

The phone features Apple’s in-house A18 chip, offering faster processing, breakthrough battery life, and artificial intelligence (AI)-driven software available only on iPhone 15 and 16 models. Equated monthly instalment plans start at an attractive ₹2,496 per month.

This isn’t Apple’s first attempt at an ultra-premium affordable phone. It previously launched the iPhone SE in 2020, but the response was muted due to its pricing and smaller screen.

Will 2025 be different?

Tarun Pathak, head of research at Counterpoint Research, says, “We think the price is on the expensive side, but we expect early adopters who want to future-proof their phone for the next two to three years — especially with AI capabilities unavailable on iPhone 14 and older models — to go for it. We expect iPhone sales to grow by 50 per cent this year, with the new phone adding 2–3 per cent to Apple’s market share.”

He also notes that Apple already has an installed base of 5 per cent among India’s 500 million smartphone owners — a figure that could now expand.

Apple has had a dream run in India over the past four years. The next phase of growth will depend on how the company and the Indian government navigate Trump’s tariff play and move forward. 

 

 

Feature Presentation: Rajesh Alva/Rediff.com