India’s Electronics Manufacturing Ecosystem poised for a Multi-fold Rise

What’s the Point?

Recent reports state that a leading manufacturer of smartphones from United States (US) is expected to shift its assembly of all US-sold smartphones to India as early as next year. This potential shift will move their supply chain away from China and reduce impact of the ongoing tariff uncertainty. This presents an opportunity for India, but is dependent on how trade talks between US and China evolve and how quickly India scales its supply chain. For a while now, the Indian Government has focused on increasing its Atmanirbharta and the multiplier effect on the economy’s GDP growth through higher manufacturing. For this, the Government has introduced initiatives to bring investments via reforms, along with increased Government capex on infrastructure in the past few years. This has already started to reap dividends as India has emerged the 2^nd largest smartphone manufacturer in the world, and making significant inroads in other segments within Electronics Manufacturing Services.

Numbers in Perspective

Source: Press Information Bureau (PIB), Axis Capital

What has led to increase in Smartphone Manufacturing in India?

• Acceleration of China+1 Trend prompting a Shift in Global Supply Chains

In the recent past, the pandemic and various geopolitical tensions (wars + tariffs) have put pressure on the supply chains of various multinational companies, especially ones originating from China. These circumstances prompted governments to bolster domestic capabilities and attract investments to reduce such dependency risk and diversify manufacturing and supply chains beyond China.

India has emerged as a prominent option with Government attracting companies to set up their manufacturing units in India through various initiatives, some of them being Production-Linked Incentive (PLI) Scheme, Phased Manufacturing Program (PMP). China+1 trend has proven beneficial for India, as the country closes the gap with China in smartphone exports. As per International Trade Centre, while the smartphone exports of China and Vietnam decreased by US$3.8 billion and US$5.6 billion in 2023-24 from the previous year, India’s smartphone exports increased by US$4.5 billion during the same period. This suggests that India gained nearly 50% of the total decline in exports from both countries.

• Rising Domestic Demand and Cost Efficiency

Domestic demand has supported smartphone manufacturing in India due to a large existing consumer base and changing income pyramid leading to higher premiumization trends. Healthy domestic demand and increasing demand from the international market has rewarded manufacturers to increase production. Cost-efficient labour in India has significantly enhanced smartphone manufacturing. As per International Labour Organization, India’s average monthly earnings stand at US$198 vs US$1,000 and US$323 for China and Vietnam in 2021. This has helped in reducing production costs, allowing manufacturers to set up their manufacturing units in India and offering products at better prices domestically.

Value Addition – An Area that the Indian Government is devoting Higher Focus

When China started to assemble smartphones in 2009, it had only 3.6% of the total value addition with only labour intensive assembly of sub-assemblies. This has increased steadily over time to ~36%. A significant shift in supply chains would require the scale of production to grow and tariffs on components and sub-assemblies to be reduced to make India competitive in global markets.

As per a PwC report, the maximum value added to the value of a smartphone is by the display of a smartphone (16%). India’s value addition has risen from 2% through assembly in 2014 to 15-16% through assembly and sub-components in 2024, but it is yet to rise up the value chain in a meaningful manner. The situation has started to change with global firms operating in India and new entrant Indian firms expanding their footprint across the smartphone value chain, aided by the Government initiatives. As per a recent report by Axis Capital, support from the upcoming components policy is expected to increase the value addition from the current 15-16% to 40-50%.

Value Addition in Other Segments within Electronics Manufacturing Services (EMS)

India is witnessing a rapid expansion certain EMS segments, like Printed Circuit Board Assembly (PCBA), which has made a complete switch towards domestic PCBA activity for mobiles due to increased import duty and higher focus on domestic manufacturing. With respect to Room Air Conditioners (Another Segment within EMS): As per Axis Capital, the imports of Complete Built-Up Units (CBUs) have dropped from 35% in FY19 to just 5% in FY25, with increased domestic production of key components such as compressors, copper tubes, and aluminium coils. This reduction in imports has driven value addition in the sector from 30% to 70%, with projections to reach 90% by FY27.

Conclusion

On April 26, 2025, the Union Minister for Electronics and Information Technology, Shri Ashwini Vaishnaw launched the Electronics Component Manufacturing Scheme to strengthen India’s electronics manufacturing ecosystem. This scheme, with a budgetary outlay of ₹22,919 crore for a period of 6 years, is aimed at integrating the entire supply chain associated with subassemblies and components. It would extend support to capital equipment, ensuring the inclusion of essential machinery that drives manufacturing processes, and incentivize the subassembly of equipment used in manufacturing, reinforcing an integrated system that would enhance efficiency and production capabilities.

It is well understood that the Government understands that an improvement in the manufacturing sector bodes well for India’s economy, and thereby, making efforts to scale the same. With the universe being broad and diversified providing investment opportunities across the economic landscape, an investor could consider investing in HDFC Manufacturing Fund. The Fund aims for a diversified exposure to companies that: (1) are engaged in manufacturing activity, (2) may benefit from Government’s Make-in-India initiatives, (3) are positioned to substitute India’s imports by manufacturing locally, (4) export goods manufactured in India and have the potential to increase employment in India.

Sources: PIB, Axis Capital, PwC, IBEF MeitY, and other publicly available information

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Product Labelling and Riskometer of HDFC Manufacturing Fund

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