A population of over 1 billion people and rising disposable income levels (per capita income rose to ~Rs. 95000 or US$ 1301 in 2019 from ~Rs. 73000 or US$ 1000 in 2015) make India one of the most lucrative markets for smartphones. The market has recorded a 10-fold expansion from ~14.5 million shipments in 2011 to ~150 million in 2020. In 2020, the Indian market declined by 4%, but still outperformed markets such as North America, Latin America and Africa.
According to Counterpoint Research, smartphone shipments are estimated to reach 173 million in 2021, a ~14% increase from the 2020 figure. Buoyed by an improved economic environment, the demand for smartphones in 2021 will be driven by elevated consumer spending.
A few years ago, the market was dominated by Blackberry and Nokia. But now, the Chinese brands, along with Samsung, have swarmed the market with cheaper smartphones. Xiaomi holds the top position, with 28% shipment market share, followed by Samsung (18%), as of the second quarter of 2021. A few of the notable Indian players include Micromax and Intex, with Reliance soon launching its own android smartphone.
Trends in the Indian smartphones market
Increasing sales through online channel: With COVID-19-induced lockdowns, sale of smartphones through online channels increased in 2020. According to IDC, online channels grew 12% YoY and contributed 48% to the total sales in 2020. However, during the festive season (Diwali), footfalls in physical stores picked up and offline channels clocked a 5% YoY growth in the fourth quarter of 2020.
The trend of increasing online sale is expected to continue every year from 2022, driven by improved digital infrastructure, surging internet usage and rising acceptance of e-commerce.
Increased usage of smartphones: Following the government curbs on social distancing and lockdown, there was a 39% rise in the average time spent by an Indian user on a smartphone. As per a report by App Annie, India stood third (4.6 hours a day) on the list of average time spent by an average user on smartphones, with Indonesia (5.2 hours a day) and Brazil (4.8 hours a day) taking the top two spots worldwide.
The top apps accessed in India were Zerodha (financial services), WhatsApp (communication) and Instagram (social media).
Demand for 5G phones to grow multi-fold: 5G smartphones accounted for <3% of the overall market in 2020. Even without the 5G network roll-out, India has already become one of the top markets for shipment of 5G smartphones. As 5G continues to be one of the top desired features in a smartphone, total shipments of 5G smartphones in India is estimated between 32 million and 40 million units in 2021. The cheapest 5G smartphone available in the Indian market is priced at Rs. 15,000–16,000 (US$ 200–220). Cheaper chipsets and competition among device manufacturers are expected to further drive down the prices.
Key factors driving smartphone sales
The constant need to stay connected has made smartphones the most popular device not just in India, but worldwide. Communication on-the-go has become a norm for people, especially for people in urban areas with busy lifestyles.
With rising disposable income levels and easy financing options (such as EMI), owning a smartphone is no longer a luxury. This is a reality for a young country, such as India, with a large working population. In addition, fierce competition among handset manufacturers and technological innovations keeps driving down the prices of smartphones, boosting affordability and sales growth.
With faster internet speed, consumption of online entertainment has skyrocketed. YouTube, Netflix, Amazon Prime, and many others offer a host of entertainment options, which can be easily accessed through smartphones. Not just entertainment, in a post COVID-19 era, smartphones are being extensively used for online education and online shopping. Also, the ‘Digital India’ initiatives by the Indian government are paving the way for various mobile apps and services. This will further spur usage and popularity of smartphones among Indians.
Recent government initiatives
Under the broader initiative of ‘Make in India’ and the National Policy on Electronics 2019 (NPE 2019), the incumbent government has set out to transform the country into a global manufacturing hub, and electronics manufacturing is one of the top goals. With mobile phones being one of the most important electronic devices nowadays, there is a policy push to scale up mobile phone manufacturing and assembly operations in the country. Under the NPE 2019, production target of 1 billion mobile phones is expected by 2025; this includes ~600 million units for exports.
To reduce import dependency and increase indigenous manufacturing of mobile phones, the government introduced the Phased Manufacturing Programme (PMP) in 2017. Under this scheme, the government levied a 10–15% customs duty on import of parts & components. However, even with the PMP, a large-scale shift in component manufacturing to India was not evident in 2019, with the country contributing only 5% to the global mobile phones market (worth US$ 485 billion). It also imposed zero customs duty on the same products if imported from Vietnam, Japan and South Korea, which in a way defeated the purpose of such a policy.
For the industry to grow, there was a need to shift from ‘import substitution policy’ to a more ‘increase export’ policy.
Production-linked Incentive Scheme (PLI): Notified in 2020, the PLI scheme offers incentives of 4-6% on incremental sales of mobile phones manufactured in India to eligible companies for a period of five years from the base year (2019-20). High-end manufacturers or companies producing handsets worth over Rs. 15,000 (~US$ 200) must sell goods worth Rs. 4,000 crore (~US$ 550 million) or more to avail the subsidy in 2020-21.
In April 2021, the government extended the scheme until 2025-26 (a year’s extension from the initial 2024-25) and allowed companies to choose base years as either 2019-20 or 2020-21. The government has cleared about 16 applications from both domestic and multinational companies. The total outlay is estimated to be >Rs. 40,000 crores (~US$ 5.5 billion).
As per a recent Credit Suisse report, if the PLI targets are met, India could be successful in capturing an additional 10% share of the global mobile phone market (by value and volume) by 2023-24.
The success of the scheme hinges on how efficiently the process of disbursing incentives (direct benefit transfer) is handled by the government.
Scheme for Promoting Manufacturing of Electronic Components and Semiconductors (SPECS): Offers 25% incentive on expenditure incurred for establishing new production units or modernizing existing units of electronic components and semiconductors that make up the supply chain of electronics manufacturing system.
With an objective to improve electronics manufacturing ecosystem, the total outlay under this scheme is estimated to be ~Rs. 3,200 crores (~US$ 440 million).
Modified Electronics Manufacturing Clusters (EMC 2.0) Scheme: Offers financial incentives for the development of world-class infrastructure, along with common facilities and amenities through Electronics Manufacturing Clusters (EMCs). The scheme aims to strengthen supply chain responsiveness, consolidate suppliers, decrease time-to-market, lower logistics costs, etc.
Some initiatives taken by private companies
VIVO: Apart from committing to invest ~Rs. 7,500 crores (~US$ 1 billion) for manufacturing mobiles phones in India in 2019, the company further aligned with the ‘Make in India’ initiative by revamping its logo and adding a new ‘Make in India’ design to be printed on the boxes of phones for sale in India.
TATA GROUP: Plans to invest ~Rs. 11,000 crores (~US$ 1.5 billion) for a new mobile phone and component manufacturing plant in Tamil Nadu to take advantage of the govt.’s PLI scheme.
Samsung: The company announced plans to invest ~Rs. 3.7 lakh crore (~US$ 50 billion) in India over the next five years to manufacture phones. It plans to produce phones worth Rs. 2.2 lakh crore (~US$ 30 billion), priced above Rs. 15,000 (~US$ 200), under the PLI scheme.
India’s smartphone market is all set to bounce back after the COVID-19 pandemic, which is expected to be under control with rising vaccinations. With just a minor dip in 2020, market resilience during the pandemic is testimony to the potential of the Indian smartphones industry. As per the NPE 2019, domestic smartphones market is estimated to reach US$ 80 billion by 2025-26, from US$ 25.1 billion in 2018-19.
With ~320 million feature phone users, the market presents a huge opportunity. With Reliance Jio set to launch a low-cost smartphone, migration of more and more feature phones to entry-level smartphones is inevitable. If the low-cost phone is a success, the Indian smartphone market will enter a hyper growth phase.
The other growth trigger could be 5G, which is touted as the next battleground for phone manufacturers as well as telecom service providers in India. With flat sales for the past couple years, the Indian market, with a large untapped millennial population, presents an attractive opportunity for industry players.
With smartphone penetration levels in India being lower than that in China and the US, the market is hot for more investments with supporting government policies.
Demographic settings (backed by technology rollouts and supportive govt. policies) make sure that the demand from domestic market is a huge opportunity for global players. However, the domestic market is expected to saturate by 2025—going much beyond the estimated 173 million shipments of 2021 and expanding 3x more than the 2018 level. Hence, growth needs to be driven by export-oriented production.
After the US-China tariff war and COVID-19 pandemic, companies such as Foxconn, Wistron and Pegatron are looking to rejig their global supply chains and reduce dependence on China. Vietnam, Cambodia, Thailand and even Bangladesh offer potential alternatives for such companies. However, the razor-sharp focus of the Indian government to build digital infrastructure, outline policies and transform India into a global manufacturing hub is only proof that the country is getting ready to welcome some of these manufacturing giants.