Can Indian Companies Build Global Mobile Phone Brands

India needs to transform from world’s second largest mobile phone assembler to a manufacturer says Sunil Mani

(Image:An Apple iPhone)

By Sunil Mani*

India has emerged as the world's second-largest mobile phone producer. This year, for instance, the value of Apple's iPhones assembled in India is projected to reach $10 billion (₹85,000 crores). In fiscal year 2013-14, the industry's output including iPhones, was $3 billion (₹26,700 crores); ten years later, 2022-23, production soared nearly 14-fold to $41 billion (₹3,50,000 crores).

In the process, India has successfully reduced its dependence on imported mobile phones. In 2014, four out of five phones sold in India were imported; in 2023 one out of five phones were imported.

Meanwhile, smartphone exports surged from $11 billion in 2022-23 to $16 billion in 2023-24, making India the third-largest exporter of the device. The United States is the largest destination, accounting for $6 billion in 2023-24, more than a third of the total exports of smartphones from India. This reflects a shift towards assembling quality products for premium markets.

Between 2013-14 and 2022-23, the smartphone industry in India achieved a compound annual growth rate of 42%. However, this growth trajectory has not been steady, with renewed momentum since 2020-21, likely due to expanded benefits under incentive schemes.

Such remarkable growth can in part be attributed to policy initiatives like the Phased Manufacturing Programme (PMP) and the Production Linked Incentive (PLI) scheme. These programs incentivise domestic production by limiting imports of low-value components while promoting high-value additions. Also, the government of India has pressured Apple, Samsung and other foreign vendors to shift their production to India, in order to serve one of their largest markets.

Despite robust output growth, the smartphone industry faces the critical challenge of using more components manufactured in India. A measure of localisation—the ratio of gross value added locally in India to gross output—reveals concerning trends. While official statistics on mobile phone value addition by local manufacturers in India are limited, data from the broader communication equipment sector provide some insights.

According to the Annual Survey of Industries, the value-added ratio of smartphone manufacturers in India was just 8% in 2021-22. This indicates an industry that mostly imports components for assembly, contributing very little domestically in added value. Among other things, the low level of localisation undermines India's ambitions to create a fully self-reliant mobile phone manufacturing eco-system.

Part of the reason is the lack of component manufacturing and insufficient investment in research and development in India by Apple, Samsung and other foreign mobile phone vendors.

Another factor is that India lags in acknowledging registered global patents. Litigation by foreign mobile phone suppliers against Indian competitors over patent infringement further complicates matters. Foreign companies such as Ericsson frequently prevail in disputes with Indian firms due to the courts favoring patent owners. For instance, a recent ruling by the Delhi High Court mandated that royalties paid to foreign phone vendors be calculated based on end-device pricing rather than chipset pricing, significantly raising licensing costs for Indian assemblers.

India’s lack of recognition of global mobile telecom patents impacts domestic manufacturing in several ways. Indian manufacturers largely operate as local contractors who rely heavily on foreign companies for almost all the technology. Apparently, content with the profits they make, the Indian manufacturers have little interest in building components and enhancing the domestic value of the products they assemble. Also, they apparently have no motivation to spend their capital to innovate and compete on the global markets.

Not surprisingly, while India is the world’s second-largest manufacturer of mobile phones after China, Indian mobile phone manufacturers have no strong patent portfolios that can help them expand in the global markets. Also, unlike Vivo, Oppo, Xiaomi, and other Chinese brands, Indian companies have no major global brands.

To address these challenges, India must implement policies of rewards and penalties to push local manufacturers to focus on innovation and patent generation. These include investing in research and development and fostering partnerships between the Indian Institutes of Technology and industry. Also, strengthening the intellectual property framework will help Indian companies create and hold patents, thereby enhancing their competitiveness in the global market.

In July, 2023, the Indian government unveiled initiatives aimed at empowering domestic companies to secure patents in 6G and other emerging mobile technologies. Central to these initiatives is the Bharat 6G Alliance, a collaborative effort that unites academia, industry leaders, and research institutions. This alliance is tasked with establishing frameworks for intellectual property rights and creating testbeds—controlled environments that enable researchers and businesses to experiment with new technologies and develop innovative products and services.

The economic impact of the smartphone assembly boom in India is substantial. Between 2021 and 2024, the PLI scheme alone contributed $12 billion (₹1,10,000 crores) to government tax revenues while catalysing production worth $163 billion (₹12,55,000 crores)—demonstrating its cost-effectiveness. Furthermore, approximately 300,000 direct and 600,000 indirect additional jobs, notably for women, have been created since fiscal year 2021.

Despite these accomplishments, several challenges remain that could impede the sector's potential, even as an assembler of imported smartphones. These challenges include high input tariffs, which are a result of complex tariff structures on imported components established by the Indian government to ostensibly protect domestic mobile phone manufacturers. Such tariffs elevate costs in India compared to countries like Vietnam and China.

To tackle these issues and maintain the growth momentum, the government is contemplating extending the Production-Linked Incentive scheme beyond 2026. Additionally, there are plans to introduce new incentives aimed at boosting domestic production of critical inputs while simultaneously reducing tariffs and lowering production costs.

Given restrictions and major local competitors in China, India is the largest market for Apple, Samsung, and other foreign vendors of smartphones. Indian policy makers ought to use this as leverage to push foreign vendors to further expand production of their devices in India, as well sharply raise their sourcing of local components. Perhaps policy makers can thereby help Indian manufacturers create global smartphone brands.

*Sunil Mani is a visiting professor, Centre for Development Studies, and Ahmedabad University, both in India. The views expressed are personal.