Apple’s iPhone is one of the most popular phones among Indian across generations and you will find many using one brought in the US by people themselves, by their friends or relatives. This is common because of a significant difference in cost when the iPhone is purchased in the US compared to India. While Indians know all about it, the cost issue of the iPhone in India was mentioned by famed economist and former Reserve Bank of India (RBI) Governor Raghuram Rajan in a recent note on the government’s Production Linked Incentive scheme for manufacturing in India.
The Nobel laureate referred to the cost of a specific iPhone model, iPhone 13 Pro Max which costs Rs 92,500 in the US city of Chicago and Rs 1,29,000 in India for a model of similar spec, an increase of 40 percent on the markup, the former RBI governor said.
Rajan had taken the cell phone industry’s example to question whether the PLI scheme of the government would work, going on to write that more evidence was needed before committing to it further.
He mentioned that custom duty on mobile imports was increased to 20 percent in April 2018, which “immediately increased the domestic prices of mobiles, allowing producers to charge Indian customers more.” After this the government introduced the production linked incentives “which offer manufacturers a government payment of 6 percent in the first year of every cell phone they produce in India, down to 4 percent in the fifth year, provided they meet incremental investment and sales targets.
In the piece, Rajan mentions about the “handsome subsidy of 24 percent to 35 percent” that cell phone manufacturers get in addition to “bounty” through “state GST waivers, power, land and capital expenditure subsidies.”
“Who pays?” the former RBI governor writes, answering, “The Indian customer pays a higher price because of tariff, and the Indian taxpayer payers for the subsidies, not just to Indian firms that are selected in the PLI scheme but also to international manufacturers like Foxconn and Winstron.”
"I think the jury is still out on whether PLI works, but the government should investigate more before extending the costly scheme to yet more industries," he writes in the LinkedIn post sharing a 5-page piece on the PLI scheme with the iPhone 13 price reference.
To read the full piece by Raghuram Rajan, you can go to the LinkedIn post here.
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