Indians aren’t just talking non-stop on mobile phones, they are also making them like never before. Over the last four years, the country has seen a massive boom in the number of mobile manufacturing units under the Narendra Modi government—in fact, a 60-fold increase, if electronics and information technology minister Ravi Shankar Prasad’s July 12 tweet is anything to go by.
India maintained its position as the fastest growing smartphone market in the world in 2018 with double digit growth, as per an IDC report. However, the industry is plagued by many issues and a lot still needs to be done if India were to emerge as a mobile phone manufacturing hub.
First, on the policy front, an issue that needs immediate attention by the government is the misuse of FTA with Association of Southeast Asian Nations (ASEAN) countries in the form of duty evasion by some players, who are importing completely built units (CBU)s at zero customs duty. This will adversely impact both the government and domestic brands in terms of revenue loss and unfair pricing, respectively.
Second, the budget 2018 hiked the import duty on critical phone components like printed circuit boards (PCBs), camera, sensors, etc by 10 per cent. However, most manufacturers still need to import these components due to the absence of a domestic component manufacturing eco- system. This has already led to spike in prices of mobile phones which has to be absorbed by the manufacturers, further eroding margins. Additionally, though the move by government to hike import duty on CBU’s to 20 per cent is well intentioned, the fact that currently about 80 per cent-90 per cent components are taxed (which were earlier nil), make the pricing differential between CBU’s and domestic manufactured phones negligible, thereby rendering the budget move ineffective. Therefore, the government needs to roll back the hike on components and further hike import duty on CBU’s to discourage imports and boost domestic production.
Third, a recent development that has adversely affected the industry is the steep three fold rise in Bureau of Indian Standards (BIS) fee for testing and compliance, without any valid reason. This is not including other tests like BIS language testing, Specific Absorption Rate (SAR) and Restriction of Hazardous Substances (ROHS) which all put together dent manufacturer margins. We urge the government to come up with a slab based formula and categorise manufacturers as per sales volume or value, which we feel is a fairer way to assess small, medium and large players and provide a level playing field.
Mobile manufacturing scenario in India
In 2014, India had only two mobile-making units, according to data from Hong Kong-based Counterpoint Research. By the end of 2017, there were 123. A number of foreign phone makers have entered the scene in recent years. Just this month, South Korea’s Samsung set up the world’s largest mobile factory in the northern Indian state of Uttar Pradesh. However, industry experts add a caveat.
Most of these factories simply assemble parts imported from countries like China, Tarun Pathak of Counterpoint said. For example, Cupertino-based Apple has been assembling the iPhone SE in India and now reportedly plans to start assembly of the iPhone 6S, too.
Since manufacturing has not been India’s forte for decades, the country lacks an ecosystem of skilled labour and investments. Moreover, for India to start making phones, it must undertake the herculean task of setting up factories that manufacture the components. The Manufacturers’ Association for Information Technology (MAIT), the apex body representing India’s hardware sectors, claims that the newly launched goods and services tax regime favours IT importers over small domestic producers in some cases. “It will not happen overnight,” said Jaipal Singh, a senior analyst at International Data Corporation (IDC) India. “It will take some time to bring the entire ecosystem in India.”
In comparison, China is considered a faster and cheaper option by not just Chinese and South Korean phone makers but even America’s Apple. In fact, China is a favoured manufacturing destination even among Indian startups. Nevertheless, analysts say even assembly moving to India is a good sign. “The government’s strict policies and customs duty hike has worked in India’s favour,” said Singh of IDC. “The first step is to be able to shift assembly to India. Some components are also being manufactured locally already.”
How Chinese brands are growing in India?
The penetration of Chinese companies in the Indian smartphone market was easy as both the countries have similar market structures. India as a distribution market has turned into an easy expansion opportunity due to the help of major e-commerce players. The online-only business model has been successfully accomplished by Chinese brands like Lenovo and Xiaomi.
Furthermore, both India and China share the same 4G frequency bands of 1800MHz and 2300MHz, which has allowed Chinese smartphone makers to bring the latest products in India along with the home country, as no additional frequency bands modifications are required. This actually indicates that any Chinese 4G smartphone with support for the English language can be easily used in India without any issue.
Also, the competitive pricing, aggressive marketing, and faster adoption of the 4G technology of Chinese smartphone companies are driving a sustained growth. Moreover, the integration of high-end specifications, importance on good cameras, and classy design are stuffed even into the budget mobiles.
The Indian Government’s Make In India initiative has managed to attract as many as 25 mobile phone companies including Lenovo, OnePlus, Xiaomi, Gionee, Oppo, LeEco, and Huawei among the others. Most of these companies have either started or likely to start manufacturing their products in India soon.
How are Indian mobile makers dealing with it?
Micromax is the only native smartphone maker who is safeguarding the Indian front adjacent to the Chinese competitors. To tackle the sheer competition, Micromax came up with its Yu smartphone brand which sports ‘Made in India’ badge on it. At the same time, other prominent Indian mobile brands like Lava, Spice, Karbonn, and iBall have failed to get appreciation in both Indian and other markets.
The key restrictions faced by the Indian mobile makers are the sub-standard build quality, unwillingness to provide updated firmware and seedy circuits. On contrary, the Chinese manufacturers are offering innovation, quality, and expertise in their products which have put them an edge over its Indian rivals.
The full-fledged flagship smartphone segment is dominated by Chinese smartphones likes of the Xiaomi Mi5, OnePlus 3T, and Vivo V5 Plus. While so, most of the Indian smartphone makers are stuck on the sub-5k segment. Micromax, with its Yu brand, tried to venture into the affordable flagship space by keeping the prices in sub-12k range. Although the Indian start-ups like Sachin Tendulkar-funded Smartron and Creo had tried to draw attention in flagship space, they are yet to witness success.
India is set to emerge as the largest mobile manufacturer in the world in the next few years. From two manufacturing units in 2014 to 120 currently, the size of the domestic mobile manufacturing industry was Rs 940 billion in 2016-17 , employing over 150,000 direct workers and contributing 1.75 per cent to India’s gross domestic product (GDP), thereby generating large revenues for government through indirect and direct taxes.
The Indian smartphone industry is rapidly growing quarter by quarter, but still, the domestic makers are in a complex situation at present. Apart from the Chinese OEMs, other international smartphone brands like Apple and Samsung are also taking away the opportunities of domestic companies. Though it will take longer to regain the market share, the Indian mobile companies will surely find ways to survive in the highly competitive market.