Mobile phones have been the biggest agents of revolutionary change in India. Still, with only 20% mobile users owning a smartphone, India remains one of the largest underpenetrated smartphone markets in the world. Contrastingly, it is also one of the fastest growing smartphone markets. According to Counterpoint Research, the smartphone market in India grew 23% year-on-year in the third quarter of 2016, compared to the global growth rate of 5%. This latent domestic demand is the foremost reason why smartphone makers — both international and local — have been setting up indigenous manufacturing facilities at a rapid pace. The research also suggests that the number of brands manufacturing smartphones locally have increased from 10 to 35 in the latest quarter, with 70% of smartphones shipped locally assembled.
Prime minister Narendra Modi’s long-term target is to ensure net zero balance between electronics imports and exports. According to Ravi Shankar Prasad, minister of Information Technology, mobile manufacturing firms have generating 40,000 direct and 125,000 indirect jobs in the last one year. India’s mobile production capacity has shot up from 68 million units in 2014 to around 200 million units in July this year. Foreign direct investment in electronics manufacturing has also increased from Rs.11,000 crore in 2014 to Rs.123,000 crore in 2016. What explains this boom? And what’s the road ahead?
Level playing ground
The government has played a major role in this boom, by proactively encouraging indigenous mobile manufacturing through policy intervention. In December 2014, the Department of Electronics and Information Technology set up a 14-member Special Task Force to lay a roadmap to increase mobile and electronics manufacturing in India and reduce dependency on imports. The task force has set a target of manufacturing 500 million mobile phones by 2019 and a turnover of Rs.150,000 crore to Rs.300,000 crore.
The first step to achieve this was to change the counterproductive duty structure. India has historically followed an inverted duty structure for consumer electronics, where finished goods attract lesser import duties than the components. The government has tinkered with this. The duty on finished mobiles was increased from 6% to 12.5% in 2015. This has encouraged contract manufacturers like Taiwan’s Foxconn to set up base in I