CNBC's Inside India newsletter: Why Make-in-India isn't a guaranteed success despite U.S. tariffs on China

Apple's plans to shift iPhone manufacturing to India, aiming for 25% of global production, face headwinds as former U.S. President Trump expressed his preference for domestic production despite potential cost increases of 25%, according to Bank of America analysts. Challenges for India include establishing robust supply chains, infrastructure limitations, and productivity gaps that offset lower labor costs, potentially hindering its competitiveness in high-value manufacturing, according to Amundi Asset Management. Meanwhile, an analyst from Global Trade Research Initiative suggests India currently earns just $30 per iPhone assembled.

Analysis

Apple's (AAPL) strategic initiative to manufacture up to 25% of global iPhones in India, thereby diversifying from its current ~90% reliance on China, encounters multifaceted challenges, including political pressure from the U.S. exemplified by former President Trump's call for domestic production. Bank of America (BAC) analysts project that shifting final iPhone assembly to the U.S. could inflate costs by 25%, or approximately $160 per high-end device, primarily due to higher labor rates, and would necessitate tariff waivers on globally sourced components for viability. India's path to becoming a significant electronics manufacturing hub is impeded by substantial hurdles; Amundi Asset Management points to the protracted timeline for establishing robust supply chains and critical infrastructure, such as reliable power and logistics, and notes that low labor costs may be offset by inferior productivity, impacting unit labor cost competitiveness. Furthermore, the Global Trade Research Initiative highlights India's current limited value capture, estimated at just $30 per iPhone, much of which is reportedly returned as subsidies under incentive schemes, and raises concerns that tariff concessions to Apple could undercut efforts to build a domestic component ecosystem. Despite these manufacturing-specific obstacles, some market observers maintain a positive long-term outlook for India, citing its substantial domestic demand as a key growth driver, a factor Moody's (MCO) suggests could insulate it from U.S. "reciprocal" tariffs, which stand at 26% on certain goods. India is actively negotiating for a full tariff exemption, though its reluctance on agricultural imports presents a challenge. The nation also aims to elevate its manufacturing global value chain participation, focusing on electronics and metals, and has made strides in its defense sector by curbing import dependency, although investors remain watchful of order execution. Recent market indicators show Indian equities retreating over 1.5% in the past week, while the Nifty 50 remains up 3.65% year-to-date, and the 10-year government bond yield is at 6.22%, against a backdrop of regional geopolitical considerations such as India-Pakistan relations.

Key Decisions for Investors

• Investors should closely monitor Apple's (AAPL) iPhone manufacturing strategy, considering the financial implications of potential U.S. reshoring versus the operational challenges and limited immediate value capture in India.
• Evaluate investments in India by balancing the compelling long-term domestic growth narrative against significant near-term execution risks in its manufacturing sector, including infrastructure deficits and productivity gaps.
• Approach opportunities in India's targeted growth sectors like electronics and defense with caution, prioritizing companies demonstrating strong supply chain management and progress towards higher value-added production beyond simple assembly.
• Factor in the evolving U.S.-India trade relationship, particularly tariff negotiations and their potential impact on export-oriented industries, alongside regional geopolitical stability when assessing Indian market exposure.