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Indian iPhone assembly is slated to start in June

Apple continues to prod New Delhi for incentives

MUMBAI Apple will start assembling its iPhone SE in India in June, at the Bangalore factory of Taiwanese contract manufacturer Wistron, a reliable source told the Nikkei Asian Review. With the right tax incentives and more relaxed local sourcing regulations, other iPhones could be made in the South Asian country, too.

Initially, the company will import components from existing suppliers and only assemble in India. This will result in a 16% savings on duties, compared with importing finished iPhone SEs. The handsets are the size of the iPhone 5, with a 4-inch display, but feature iPhone 6 technology.

To save more, and make the model more competitive in India, Apple is lobbying the government for tax holidays and the relaxation of a 30% local sourcing requirement for single-branded retailers.

"The initial plan is to assemble the iPhone SE in Bengaluru [Bangalore] and, after assessing the market, it will be decided which other models could be rolled out," the source said.

The Cupertino, California-based Apple has been promised further consideration by New Delhi after a national goods and services tax is introduced, probably in July, according to the source. Nirmala Sitharaman, the commerce and industry minister, has said on record that Apple's so far mostly unmet requests will only be reviewed once the GST comes into effect.

The GST will replace a plethora of central and state levies with a uniform national sales tax. This is expected to reduce costs for all sellers and manufacturers -- damping the chances of any preferential tax breaks for Apple. However, the government might consider relaxing the mandatory local sourcing given India's limited electronic component ecosystem.

The sourcing requirement is tied to India's rules for foreign direct investment in retailing. Assemblers can import parts and just put them together. But if a foreign manufacturer -- Apple, for instance -- wants to open a single-brand store, its products must have 30% local content. Companies are exempt for the first three years, while "cutting-edge technology" manufacturers get an additional five-year grace period.

Apple is keen to advance further into India and to avail itself of inexpensive labor and materials, but it wants the rules eased.

WEIGHING THE OPTIONS Other Apple contract manufacturers are also viewing India with interest. Hon Hai Precision Industry, or Foxconn, is scouting possible factory sites but has no firm plans to build as yet, partly because of India's daunting bureaucracy.

Fellow Taiwanese contract manufacturer Pegatron is also said to be looking but has not revealed any concrete intentions.

For the quarter ended in December, Apple sold a record 800,000 handsets in India, according to local media reports, up from 500,000 the previous year, when it controlled just 2% of the market.

Nikkei staff writer Debby Wu in Taipei contributed to this report.

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