Smartphones – A Key Component of India’s Exports!

What’s the Point?

The investment in smartphone manufacturing under the Production-Linked Incentive (PLI) scheme as well as production recently surpassed the targets (announced by S Krishnan, Secretary of the Ministry of Electronics and Information Technology). As per Press Information Bureau (PIB), the total value of production currently stands at ₹6.66 lakh crore – higher than the targeted cumulative production of ₹4.39 lakh crore in FY2024. Furthermore, the total investments made currently stand at ₹9,100 crore – much higher than the targeted ₹7,000 crore cumulative investment during the 5-year scheme period till FY2026 and ₹5,488 crore till FY2024. The Government recognizes the need for manufacturing in India’s Amrit Kaal. Hence, such an outperformance of the targets is a big positive as it aligns well with the Government’s vision to make India atmanirbhar, by following the Make-in-India initiative.

Numbers in Perspective

Source: Centre for Monitoring Indian Economy (CMIE), India Cellular and Electronics Association (ICEA), *HS: Harmonized System

Reason and Impact of Increased Smartphone Manufacturing in India

In 2014-15, only 26% of the smartphones which were being sold in India were manufactured in India, while the rest were being imported [PIB’s Press Release (September 26, 2024)]. Since the launch of PLI for Large Scale Electronics Manufacturing in April 2020, India has seen wide participation from global and local players. As per PIB’s Press Release (April 06, 2022), 10 smartphone manufacturing companies were approved under this PLI Scheme, making them eligible for an incentive of 4-6% on incremental sales (over base year) for goods manufactured in India for a period of 5 years from the base year. These approvals have led to a multi-fold rise in smartphone manufacturing, with recent data indicating 99.2% of all smartphones which are being sold in India are manufactured in India!

A Smartphone-led Exports Scenario

According to PIB’s Press Release (September 26, 2024), India has been currently manufacturing between 325 to 330 million mobile phones a year in India. With nearly a billion mobile phones in use in India, the Government believes that the domestic market has been saturated, which has led to a substantial uptick in the exports of mobile phones.

Smartphones – Highest Exported Product to our Largest Trading Partner

As per data published by Ministry of Commerce and Industry, smartphones have quietly surged to become India’s largest product export – based on HS code classification – to the United States (US) by value over the past three quarters, overtaking non-industrial diamonds. In the June quarter of 2024-25, smartphone exports hit US$2 billion, well ahead of non-industrial diamond (cut or otherwise but not mounted) exports, which stood at US$1.44 billion.

India emerging strong amongst the pack of Smartphone Exporting Countries

India is fast bridging the gap with China and Vietnam in terms of smartphone exports. While FY2024 witnessed smartphone exports from China and Vietnam fall 2.78% and 17.6%, respectively, from the year before, as per ICEA, smartphone exports from India surged 40.5%. This indicates that India has been able to capture the shift in supply chain from China.

India’s need to rise up the ladder in Manufacturing Value Chain of Smartphones

India’s growth in smartphone manufacturing has not merely been on assembly activities. Global firms operating in India, as well as new entrant Indian firms, have been expanding their footprint across the smartphone value chain. While the initial phase of manufacturing was dominated by white-label imports that were branded by indigenous retail chains, the next phase saw the import of partially or completely unassembled parts of products, which were assembled in India.

Since 2014, the assembly process has moved to India through global original equipment manufacturers (OEMs) and electronics manufacturing services (ESMs) players who are gradually expanding their presence. With the help of PLI and Make-in-India initiatives, the tide is slowly turning in India’s favour with manufacturing of higher value-added components of a smartphone like casings and sub-components of a smartphone.

Despite this progress, India’s presence in Global Value Chain (GVC) is still at a nascent stage – <1% of the global electronics trade volumes of ~US$3 trillion. At present, India still needs to import critical components. Considering the steep tariff structure, a simplification of input tariffs has long been needed through a reduction in slabs and rates on smartphone components. An Example: As per a report by BIF and Koan Advisory, India has a tariff of >10% on 35 components, compared to countries like Vietnam and China which have a cap of 10%. Further, India has a 7-tiered complex tariff structure, with tariffs for some components going up to 25%. While the Government has reduced the custom duty on some components to 15% from 20%, it needs to address it at a deeper level to gain further leadership.

Conclusion

The “Make-in-India” initiative, launched on September 25, 2014, has recently completed 10 years. This initiative has facilitated foreign investment, boosted domestic manufacturing, and fostered innovation. More importantly, it has helped in providing employment and enhancing skill development. Just to give context, the total employment achieved through smartphone manufacturing alone is over 1.22 lakh, which is as per the original target of the scheme.

It is well understood that an improvement in the manufacturing sector bodes well for India’s economy. With the universe being broad and diversified providing investment opportunities across the economic landscape, an investor could consider investing HDFC Manufacturing Fund, that aims to invest at least 80% of its net assets in the manufacturing theme. 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: CMIE, ICEA, PIB, PwC, Niti Aayog, and other publicly available information [Visit Product Page or www.hdfcfund.com]

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