Govt may waive off 30% sourcing norm for Apple; will the iPhone get cheaper?

Centre may look to relax its rules for Apple Inc. The company, which registered a stellar growth in Indian market in the quarter gone by, may not have to follow 30% mandatory local sourcing norms to set up shop in India.

Does this mean that the iPhone and other Apple products in India are finally set to get cheaper?

Apple currently has tie-ups with ‘resellers’ to market its products in India. Naturally, these resellers include their hefty margins to the retail price of the products increasing their prices substantially.

To give an example, the latest iPhone SE is retailing at $399 in the US (Rs 27,000 approximately). However, the phone was launched in India for a high price of Rs 39,000. Apple iPhone 6S retails at under Rs 45,000 and iPhone 6 at nearly Rs 35,000.

Earlier this year Apple’s application to the Indian Government for a licence to set up retail stores was met with a rejection.

The company was asked to apply afresh and has now been granted relaxation of the crucial norm of 30% sourcing of content that goes into the manufacturing of its products from the small and medium scale enterprises in the country. The government took the decision the company requires state-of-the-art and cutting edge technology and where local sourcing is not possible.

The government, in November last year, had relaxed the single-brand FDI policy with sourcing exemptions for companies that require 'state-of-the-art and cutting edge' technology.

The move is expected to pave the way for many more companies opening single-brand retail stores in India.

Will the iPhone sell for cheaper now?

Apple products, including the iPhone, have always commanded a premium. This is the reason why with just under 20% of the smartphone market share, Apple earns 90% of the profits of the total smartphone market in the world.

But as Apple sold its products in India through its network of resellers prices were higher than its other markets like the US, Europe and China.

In a recent report by Economic Times, one of Apple's executives too had recently said that the company is expected to give deep discounts on its products once it gets the clearance to open Apple stores in India.

According to Neil Shah, Research Director, Counterpoint Research, “Going own store, Apple should be out of excuse to price the iPhones higher, however, considering the cost of setting up your own store, employees and so forth, I highly doubt Apple would lower the prices significantly. Apple will look to milk the brand premium as much as possible.”

Make in India, Apple

The government however has taken a keen interest in Apple and Prime Minister Narendra Modi in his meeting with CEO Tim Cook during his visit to the US in September last year had invited him to set up manufacturing facilities in India.

This prompted Apple in February in this year to announce that it will build a technology development centre with an investment of $25 million (Rs 170 crore) in Hyderabad.

Shah of Counterpoint Research added, “Foxconn is already setting up multiple factories in India, so if Apple gains enough scale of roughly 2-3 million per year, it should make case for Apple to begin assembling phones in India and probably save extra 10% and maybe pass it on to consumers.”

However, he added that if Apple decides to go direct channel and ‘Make in India’, it should help Apple to be in a position to correct the exorbitantly priced iPhones to a much more attractive levels which will definitely stimulate demand by at least by 20-30%.

Will Apple Store increase sales?

This development comes at a time when Apple reported a decline in revenues for the first time in 13 years. Apple's revenues dropped to $50.6 billion as against $58 billion in the given period. Sales of iPhones fell to 51.19 million units as against 61.17 million units in the same period of last year—first drop since its launch in 2007.

However, India has been bright spot for Apple as it posted a 56% growth in revenues as compared to the same period last year, the Cupertino-based company said earlier this week.

Despite this, Cook said that though India presents a "really great opportunity" for Apple, slow networks and the informal retail structure is preventing the company from realising its full potential.

Cook said while India is the third-largest smartphone market in the world, it is dominated by "low-end" smartphones primarily because of the network and the economics due to which "the market potential has not been as great there."

But with the possibility of reducing the price of the iPhone, the aspirational Indian might just be able to afford the phone better.

(With inputs from PTI)