Why Apple's manufacturing plant in India would bring down iPhone prices by only Rs 2,500

Apple on Wednesday met with Indian government officials to present some of their demands to them for them to set up their manufacturing plant in India. The government's revenue department is yet to take a decision on the exemptions sought by Apple, said a government official according to a Bloomberg report.

The official added that some of Apple’s demands are already part of existing policy and respective government departments are examining the rest. “We appreciate the constructive and open dialogue we’ve had with government about further expanding our local operations,” Apple said in statement.

It can be recalled that Apple had presented some huge demands which included a 15-year tax holiday on imports of components and equipment a few days back. Apart from this it has asked various other waivers. While members of Apple have met with government officials on numerous occasions, this meeting with the government departments was expected to the most crucial.

The setting up of a manufacturing plant for Apple in India is looked at giving a big boost to manufacturing in the country if it follows the 30% local sourcing norms and could see the prices of Apple products like the iPhone coming down. Apple has been looking at increasing its market share in India with other market share in China and US dwindling.

So how much will prices of Apple iPhone's come down if the government gives into the demands and it sets up its manufacturing centre in India?

Neil Shah, Research Director, Counterpoint Research says that if Apple manufactures in India it will get a 10-12% margin on its production costs and could pass part of that to customers. However, he feels that Apple will not reduce its price much as it has placed itself as a premium brand. “If they decide to reduce the prices of its iPhones it will shave around 4-5% of the older iPhone models. I don't think they will reduce the prices of their new iPhones or flagship smartphones as they position themselves on the premium quotient. With the older iPhones on the other hand they can do so as even the raw material costs will be lower for them,” he says.

This would mean that the price of an iPhone 6s would come down by merely Rs 2,500 to cost Rs 47,500 and the iPhone 6s Plus would be at Rs 57,500. At this price, it would not make much of a difference.

However, Shah feels that the Indian government will not given into such exhorbant demands from Apple as these demands are not pro-Make-in-India and pro-GST. “It will be difficult for Apple to get everything they demanded sanctioned by the government. They however might get some concessions from the government as they want to push manufacturing,” he said.

There is also the fact that if the government gives into their demands they will have to do so for other manufacturers. Anshul Gupta, Research Director at Gartner says that the government will not look at the decision in isolation but will look at every aspect before they take the decision. The government will also look at in a way of making it more appealing to manufacturers as they have aspirations to become a global manufacturing power.

Gupta further adds, “When a company sets up its manufacturing in the country, we see the company saving costs. Especially in terms of labour costs as now the costs are going up in China. Plus there is a saving on taxes, import costs of components. It is different question if they want to pass it on to the consumers or increase their margins.”