Why Buying An iPhone In India Just Became Even More Expensive

By on Feb 8, 2018 in Mobility Strategy | 0 comments

(AP Photo/Eric Risberg)

Apple has announced that it will increase the cost of iPhones in India by an additional 3% while also raising the prices of other device parts and accessories. The price hike is the second one since December and is effective immediately the company has announced.

India is already one of the most expensive places in the world to purchase an iPhone. The price of the 256 GB version of the iPhone X, for example, costs $1,650 – $500 more than in the United States. With the latest cost increase, the same device will now cost $1,700 in India. Separately, the price of the Apple Watch has gone up 8%-9% to $520.

The price increase comes just days after the Indian government announced it was increasing import duties on mobile phones and other related accessories to 15% and 20% beginning April 1, a 5%-10% increase from the previous level. The hikes were unveiled as part of the annual budget rollout earlier this month. The tariffs are designed to both protect and promote India’s domestic manufacturing base, and boost Prime Minister Modi’s signature “Make in India” initiative that he launched amidst much fanfare in 2014.

Photographer: Udit Kulshrestha/Bloomberg

Toward this end, the import duties are aimed at incentivizing foreign companies like Apple and Google to produce their devices locally in India. Both companies currently import more than 90% of their phones sold into India. Last year, Apple opened plants in Bangalore with Taiwanese contract partner Winstron to manufacture the relatively low-cost iPhone SE indigenously. The Indian government provided Apple tax concessions for the domestic assembly provided it used more local parts in its manufacturing process over time. The iPhone SE is exempt from the most recent package of import taxes.

In October 2017, India overtook the United States to become the second largest smartphone market in the world after China. Despite this, the country’s smartphone penetration rate remains relatively low. Of the roughly 650 million mobile phone users in India, a little more than half use smartphones. With a population of 1.4 billion citizens, this leaves hundreds of millions of Indians who do not use such devices.

The huge gap presents a massive opportunity for companies like Apple to expand in India. But Apple lags far behind its foreign competitors in the South Asia nation. Right now, Xiamoi and Samsung dominate India’s smartphone market, accounting for nearly half of the 130 million smartphones sold in the country in 2017. According to a recent report issued by the Indian Mobile Association of India, 96% of smartphones sold in India will be produced domestically by 2020, up from the current rate of almost 75%.

More on Forbes: India’s Smartphone Makers Are Planning On Pushing Out Their Chinese Competitors

For Apple to effectively compete in India, it must capture a greater share of the lower-end smartphone market and manufacture these devices locally in accordance with governing rules and regulations. It otherwise faces additional import taxes and tariffs like the ones the Modi government introduced earlier this month.

India’s vast market potential is a key catalyst behind Apple’s recent campaign to expand its footprint there. Apple CEO Tim Cook became the first company chief executive to visit India in May 2016. He traveled there again in June 2017 illustrating his bullishness toward the country. During both trips, Cook urged top Indian government officials, including Prime Minister Modi, to enact certain tax and policy changes that would make it easier for Apple to make iPhones in India and to ultimately launch retail stores there.

Apple CEO Tim Cook meets Prime Minister Narendra Modi in May 2016.

India has increasingly become a focus of Apple’s attention ever since its sales in China dipped by 14% last year to $10 billion, the first decline in 13 years. Although the last quarter of 2017 demonstrated that revenues were once again on the rise in China, Apple feels it is prudent to increase its presence in a fast-growing emerging market like India.

iPhone sales in India have been a key driver of Apple’s growth in the country, which experienced double digit growth last year. In 2017, iPhone shipments grew 23% in India from 3.2 million units from 2.6 million units the year before. But during the final quarter of 2017, iPhone sales actually fell 9% compared to the same period the year before. Analysts have linked the decline directly to the first hike in tariffs the Indian government passed on imported phones in December.

For this reason, the most recent custom duty increases could be an ominous development for iPhone sales in India for the upcoming year. The company is currently working to finalize plans to open another manufacturing plant in Bangalore to locally produce the iPhone 6. The move would constitute an important first step toward penetrating the lower-end smartphone market while still complying with local rules and regulations.

Also on Forbes: The Rise And Rise Of China’s Xiaomi In India

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