Indian smartphone industry: The journey from scale to depth

India’s smartphone exports grew by over 50% to reach US$ 9.3 billion in April-Feb 2023, as compared to imports of just US$ 1.37 billion during the same period. Indeed, this achievement represents a giant leap over the last five years.

However, to achieve the scale and depth of leading smartphone producing nations, India needs to now deepen its capabilities in mobile component manufacturing ecosystem.

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India emerged a major exporter of electronics goods as the sector observed a YoY hike of 57.36% during March 2023 at exports of US$ 2.86 billion. In the period April-March 2023, the export of electronic goods recorded a YoY growth of 50.52% reaching exports worth US$ 23.57 billion, according to the latest data released by the commerce department.

It is notable that smartphones (HS 85171300) formed a major part of electronics goods exports of India, reaching a total of US$ 9.3 billion in April-Feb 2023. Imports of smartphones during the same period stood at US$ 1.37 billion. Five years ago in 2017-18, exports of mobile phones (HS 851712) were just at US$ 212 million, while  imports were at US$ 3.54 billion. This basic data mapping shows the extent to which the equation has changed over the past five years.

The major importers of India-made smartphones in April-February 2022-23 include UAE (US$ 2.3 billion), USA (US$ 1.5 billion), Netherlands (US$ 917 million), UK (US$ 725 million), Austria (US$ 655.1 million) and Italy (US$ 574.70 million). As for imports, the major suppliers to India were China (US$ 765.64 million), Vietnam (US$ 316.17 million) and Korea (US$ 255.17 million).

By integrating “Assemble in India for the World” into “Make in India”, ICEA projects that India could raise its export market share to about 3.5% by 2025 and 6% by 2030. In the process, India would create about 4 crore well-paid jobs by 2025 and about 8 crore jobs by 2030. The incremental value added to the economy from the target level of exports of network products, which is expected to equal US$248 billion in 2025, would make up about one-quarter of the increase required for making India a US$ 5 trillion economy by 2025.

Major export drivers

India is consistently evolving in its electronics manufacturing sector and is making a mark globally. Electronics manufacturing has been a key focus area of the government. With ongoing global uncertainties like the Russia-Ukraine war and the resurgence of Covid-19 in China, India has attracted a number of global manufacturing giants.

Major international brands have now shifted their focus to setting up manufacturing plants in India. Apple’s ‘Make in India’ smartphones constitute 50% of total smartphone exports according to ICEA, followed by Samsung at 40% and other brands constituting the remaining 10% in the export share.

Currently, Apple smartphones are assembled in India at Foxconn and Pegatron in Tamil Nadu and Wistron in Karnataka. These manufacturers make iPhones 11, 12, 13 and 14 in India. According to industry estimates and reports, Apple’s sales from India rose nearly 45%, to US$ 6 billion in FY ’23. Its exports from India are estimated to have crossed US$ 5 billion.

According to JP Morgan, Apple is set to further expand its manufacturing capabilities in India with plans to produce 25% of all its iPhones by 2025. Moreover, the tech giant is set to open its first two retail stores in the country by the end of April 2023. The company previewed its 20,000 sq-ft Mumbai outlet at Bandra-Kurla Complex (BKC), the first Apple Store in India to be launched on 18^th April. The second store is set to open in Saket, New Delhi on 20^th April.

Currently, India has more than 260 mobile phones and accessories manufacturing units in contrast to only two units operational in 2014. The Budget 2023 revealed that mobile phone production in the country increased from 5.8 crore units valued at about ₹ 18,900 crore in 2014-15 to 31 crore units valued at over ₹ 2,75,000 crore in the last financial year.

Sandeep Aggarwal, Chairman – Telecom Equipment and Export Promotion Council (TEPC) and Advisory, Telecom Equipment Manufacturers Association of India (TEMA) stated in an interaction with IBT:

“India’s PLI Scheme and consistent efforts of GoI and Telecom and IT ministries have yielded Rs 82,000 crores of mobile phone exports from India in FY23. A 25% increase is possible in FY24 and next few years as others pick pace in export apart from Apple and Samsung.”

On hardware side, India can increase it’s domestic value addition to 30% in 5 years by adding domestic packing, glass, chargers, ear phones and a few parts. Also value addition on chips in terms of software and also applications will also garner up to 30% domestic value, he added.

Government steps to boost production

India has taken a keen interest to support its electronics manufacturing industry. In fruition to the consistent initiatives, India’s smartphone exports have doubled from the corresponding period of the fiscal year. More than 97% of the smartphones sold in India are produced locally, making the country the second-largest mobile phone manufacturer in the world.

Moreover, India’s efforts to attract greater foreign investment also align with the ‘China Plus One’ strategy, where companies avoid being solely reliant on the Chinese market for production and sourcing. A number of effective policy initiatives like National Policy on Electronics 2019 (NPE 2019), Production Linked Incentive Scheme (PLI) for Large Scale Electronics Manufacturing, Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS) and Modified Electronics Manufacturing Clusters (EMC 2.0) Scheme have supported the growth of the sector.

Over the past 10 years, India has been actively engaged in building a domestic electronics manufacturing ecosystem, leveraging its vast labour market and thriving IT services sector. According to a joint report by ICEA-ICRIER, India’s local value addition could reach 25% by the end of FY 2022-23. Moreover, the country is expected to produce smartphones worth US$ 40 billion in FY 2023, showing a 20% YoY growth. Out of these, about US$ 10 billion worth of devices will head to the export markets.

Addressing the threats

However, a recent WTO ruling states that India has violated trade rules, after a complaint by the EU against import duties being imposed on a range of IT products, including mobile phones at 22%. Even though this does not impact the PLI Scheme, in case India has to reverse the duties, it will incentivise imports of finished mobile handsets once again, particularly by Chinese handset manufacturers, according to Pankaj Mohindroo, Chairman, ICEA. Currently, these manufacturers account for around US$ 23 billion worth of local production. However, the dominance of players like Samsung and Apple in mobile manufacturing ensures that the impact of a duty reduction/exemption will be limited.

On the other hand, one needs to also consider the fact that while China remains the global leader accounting for around 67% of global handset production in 2021 (Counterpoint Research), its share is expected to decline in the coming years, considering the fall in demand as well ongoing efforts by manufacturers to diversify production from China.

The larger issue is that while India is now a leading exporter of finished smartphones, it is yet to capture a significant part of the value chain. Components for electronic products, including smartphones, still account for a major part of our import bill, especially sophisticated and high value components like camera sensors and PCBs. For instance, imports of Monolithic Integrated Circuits (Digital) alone account for US$ 9.24 billion during April-Feb 2022-23, growing by 27.3% YoY.

The PLI scheme aims to enhance the domestic value addition ratio of mobile phones from 15-20% to 35-40%. But as an ICRIER-ICEA study demonstrates, smartphone manufacturers in India will need a well-developed ecosystem of intermediate manufacturers to achieve the kind of global scale that the likes of Vietnam have managed. This is also the focus of the planned PLI for electronic components that the government is expected to announce soon.

Dr Sunitha Raju, Professor, IIFT and Member, Committee for Advanced Trade Research, TPCI, comments:

“The development trajectory of the electronics industry in China, South Korea and Taiwan focused on upgrading production and skill development within the framework of vertical industrial development strategy. This involved incentivizing productivity enhancement, promoting backward linkages and technology spillovers between foreign enterprises and domestic firms. With strong correspondence between trade and industrial policies, this has resulted in promoting R&D, design and manufacturing capabilities.”

She adds that in order to emerge a dominant player like China and South Korea, India needs to have the design capability coupled with manufacturing resilience and a developed tooling industry. Further, integration of the SME through cluster development with appropriate technology support is needed to leverage cost benefits of agglomeration and scale economies. PLI Scheme benefits for components need to be tailor-made so that they are lucrative as well as attractive for SMEs to enter into the fray.

Finally, while the large domestic market can provide the impetus for large scale production and the associated efficiency gains, the focus should be on developing export competitiveness, which can catapult this important industry into high value addition production. This should also be a key area of focus for FTAs, ensuring integration into global value chains.