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Illustration: Jayachandran/Mint
Illustration: Jayachandran/Mint

What the smartphone boom means for India

It could benefit both Internet penetration and the Make in India initiative

The world’s most valuable company is showing signs of slowing down, and that means positive news for India. Apple has reported the slowest ever sales of the iPhone—the primary driver of the company’s growth since its launch in 2007—for the quarter ended 26 December and forecast its first revenue drop in 13 years. But the Indian market has bucked the trend; iPhone sales have grown 76% from the year-ago quarter. Future growth prospects are robust enough that Apple chief executive officer Tim Cook has sent a clear message about Apple putting more energy into India. Eye-catching news, to be sure, given Apple’s iconic status—but it is the lower profile developments at the other end of the smartphone market that perhaps paint a clearer picture of the growth and potential of the Indian market.

According to the International Data Corp. (IDC)’s Quarterly Mobile Phone Tracker report, India’s total handset market—consisting of both feature phones and smartphones—grew about 2% year-on-year with 73.8 million units shipped in 2015’s third quarter. A more granular look at this shows that the feature phone share of the market has declined with 49.1 million units shipped in the same quarter last year compared to 45.6 million units this year. The smartphone share of the market is expanding rapidly enough, meanwhile—21.4% year-on-year for the third quarter, an upward trend that has been maintained for the past few years now—that IDC expects it to maintain double-digit growth over the next few years and replace the US as the world’s second largest smartphone market by 2017.

With the China slowdown, an increased focus on the Indian market is to be expected. And it matters for two reasons. The first is what it means for Internet penetration in India. According to the Internet and Mobile Association of India (IAMAI), the country’s Internet user base grew over 17% in 2015’s first six months to 354 million, building on 2014’s 32% growth. Sixty percent of those—some 213 million—are mobile Internet users. Given the low cost and high convenience of mobile Internet access compared to fixed access in a country like India, that percentage is expected to grow over the next few years, with all the attendant implications for Prime Minister Narendra Modi’s Digital India vision.

Given market saturation—Telecom Regulatory Authority of India figures show a mobile phone subscriber base of 980.81 million in the first half of 2015, with expansion slowing for a number of quarters now—much of that growth will have to come from cannibalisation of the feature phone segment. That puts the focus on reducing smartphone prices to make them a viable alternative—especially since rural India, an especially price-sensitive market, is expected to drive future smartphone sales growth.

And that’s where the second consequence of the focus on the Indian smartphone market comes in. Apple might get the headlines, but it’s the low-cost smartphone makers that dominate the Indian market and drive growth. Samsung, with its large number of offerings across price segments, leads with a 24% share of the market. India’s home-grown Micromax (16.7%), Intex (10.8%) and Lava (4.7%) come in second, third and fifth respective, while China’s Lenovo, in fourth place with 9.5%, rounds out the top five. But these companies—including the Indian ones—manufacture their inventory in China.

This is starting to change. A number of both Indian and Chinese companies are in the process of setting up production lines in India or have announced their intention to do so. Andhra Pradesh, in particular, is becoming a hub, aiming at a manufacturing base capable of eventually producing 60 million handsets annually.

The problem? The same it always is in India—the lack of a comprehensive ecosystem entailing infrastructure such as reliable water and power as well as a lack of clarity in tax and duty regulations.

Currently, much of the manufacturing is in the nature of assembly with imported components. Eventual plans to source more components locally, such as Lenovo’s, and move up the value chain depend on the growth of that ecosystem. So does the companies’ stated intention of making India a manufacturing hub for Asia, without which a dependence on the Chinese manufacturing base to deal with demand spikes will continue.

Make in India and Digital India are both fine initiatives conceptually. But here, as elsewhere, encouraging signs and glamorous headlines like Apple’s interest in India must be backed with solid, unglamorous work on the ground.

Can India become a smartphone manufacturing hub? Tell us at views@livemint.com

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