By Aishwarya Pathak
There was a headline on the Hindu on September 26, 2022 that read “Apple starts production of iPhone 14 at Foxconn’s plant near Chennai”, yet again, a September 30, 2022 headline stated “State’s second iPhone manufacturing facility opens at Chengalpattu” which said Taiwanese firm Pegatron will make iPhones at the Mahindra World City, Chengalpattu, near Chennai.
I will attempt to explain these events through the lens of liberalism. Liberals are in favour of free flow of trade, finance, capital and people across borders. They also argue that markets through the interaction of demand and supply will find an equilibrium and that there should be no or minimum interreference by the state. Liberalism also considers Multi-National Corporations as a catalyst for globalization that have positive effect in terms of employment generation, growth and development of a country. One such MNC is Apple. As we all know, it is the one of the biggest companies in the world in terms of its market capitalization.
Although, three contract manufacturers of Apple (Foxconn, Wistron and Pegatron) were already manufacturing low end models of iPhone in India, but in a first, newer models of iPhone like iPhone 14 will be produced almost simultaneously and close to the device’s launch world-wide in India along with China. The decision of Apple to diversify its supply chain is due to the US-China trade tensions and the covid zero policy of the Chinese government which disrupted its supply chain. The above two factors are in direct contrast to liberalism that condemns the use of protectionist instruments such as tariffs ,which were seen being imposed by the US on commodities imported from China along with other non-trade barriers. Besides this, restrictions put by the Chinese government during the pandemic such as the covid zero policy is frowned upon by the liberals who want minimum state intervention. Furthermore, liberals who favour democracy which has individuals interests at the core believe that China could sustain the covid zero policy due to its undemocratic government. In addition, due to the hostile relations between, U.S and China, many companies including apple is apprehensive of US imposing higher import taxes on goods imported from China. Moreover, protection of intellectual property has been a focus for U.S. companies, which Apple and other big brands have had some concern about in China due to continuous disregard of international norms set by international organizations such as the UNCLOS, undermining the tenet of "global cooperation" as put forward by the liberals.
Meanwhile, India has become an attractive manufacturer for Apple due to a skilled labour endowment and lower labour costs than China where these labour-intensive industries see demographic dividend diminishing due to the rising labour costs. The competitive labour cost gives India a comparative advantage.
Other than that favourable government policies to attract FDI such as "make in India" and production linked incentive scheme that aims to give company incentives on incremental sales from products manufactured in domestic units. It has an objective to make domestic manufacturing competitive and efficient, create economies of scale, make India part of global supply chain, attract investment in core manufacturing and cutting-edge technology to ultimately increase exports. All of the three Taiwanese Apple suppliers making iPhones in India are under the PLI scheme. Moreover, this scheme adheres to the principles of liberalism and has been carefully constructed to adhere to World Trade Organization (WTO) rules unlike the Merchandise Exports from India Scheme (MEIS). By its very construct, the PLI scheme does not link the eligibility or quantum of its subsidy to exports and local value addition, thus making it WTO-compliant.
The shifting of Apple’s supply chain to India might not be immediately beneficial to the consumers in terms of lower price as the new iPhones will only be assembled in the country; hardly any of its components are locally sourced and Apple has to pay import duty on them. Hence, the cost of production is expected to remain the same. But in the long term there should be some benefit accruing out of the incentives being offered by the government and it will definitely help in the availability of apple products in the Indian market which in the previous year’s saw a shortage in supply.
Apple’s supply chain that is dominated by China is seen diversifying into India not just because of its huge demand and market but also the liberalist policies undertaken by the government in line with the international norms of trade that focuses on a free market economy. In addition, the skilled and cheap labour force in India gives it a comparative advantage. A recent report by JP Morgan on `Apple Supply Chain relocation' predicted that Apple is likely to move about 5 per cent of iPhone 14 production to India from late 2022 and reach 25 per cent by 2025. This move of Apple could boost India’s reputation as a manufacturing destination and encourage other manufacturers to come to India. Building up of India’s manufacturing sector will help reduce the dependence of people on agriculture, giving them an avenue to be absorbed by the manufacturing sector. Having a competitive manufacturing ecosystem, India can specialize in the production stage, making it a competitive supplier internationally, leading to job creation, growth and development of India, leading to being an economic power as is seen in the case of China. Although the onus lies on the government to make sure that this comparative advantage doesn’t lead to disadvantage for the workers by strengthening the labour regulations and its enforcement so that the benefits of an open market percolate to every worker in India.
Aishwarya Pathak is a Student of MA (International Relations and Area Studies) at School of International Studies, JNU.