Will banning cheap Chinese phones make India a handset-making hub?

As recently as 2015, Indian brands like Micromax, Lava, Karbonn and Intex adored the shelves of phone shops across the country, and used to sell like hot cakes. But then, the Chinese phones started pushing the less-fascinating Indian handsets off the shelves, slowly but steadily.
 

Cut to 2022. Local firms have been decimated. Indian brands combined have a market share of less than 1 per cent in overall smartphone shipments from all brands, including America’s Apple and South Korea’s Samsung. Meanwhile, the top four Chinese brands have a 63 per cent share.

While in the sub-10,000-rupees segment, the market share of Indian brands is around 3-4 per cent, while that of Chinese brands is almost 90 per cent.

Now, while discussions on the strategy for reviving the domestic mobile device industry are on, there’s a growing consensus within the government around the idea that the lower end of the market should be reserved only for domestic players. Chinese brands like Xiaomi, Realme, Oppo, Vivo, and Transsion might have to exit the segment of India's mobile market that is made up of handsets priced below Rs 10,000. 

Such a move would be part of the plan to create “Indian champions” in the sector, which is a key objective of the production-linked incentive scheme. The strategy could be executed either through an enabling framework or negotiations. One option is to encourage foreign OEMs to push electronic manufacturing services in India and co-develop and co-design affordable phones with home-grown brands. So who will fill the void if Chinese firms are barred?

Prachir Vardhan Singh, Senior Research Analyst, Counterpoint Research of Samsung has a dedicated supply chain and manufacturing base. Jio is in a prime position to leverage this with JioPhone Next. Capacities of non-Chinese brands may not fill the gap in short-term.

Due to government policies, Chinese companies have localised their production, making India the second biggest mobile manufacturer after China. In fact, nearly all the phones sold in India are manufactured domestically. In March, in a big boost to the PLI scheme, Apple’s vendors committed to a minimum incremental production of 25,000 crore rupees of mobile devices in FY23. This threefold jump in commitment over FY22 has been made possible by the Indian entry of Apple’s third contract manufacturer, Pegatron. 

Domestic firms Lava, Micromax, Padget Electronics and UTL Neolyncs also participated in the PLI scheme for making mobile devices. However, their Chinese counterparts, who are allegedly on a subsidy binge, have out-competed them. Analysts say that they have also been unable to become contract manufacturers for mobile firms. Thus, their production levels aren't enough to take the incentives on offer.   
 

Prachir Vardhan Singh of Counterpoint Research can’t deny Chinese brands and Samsung’s contribution to components ecosystem. Growth in local value addition is a gradual process. The potential ban will not be an inflection point for that. 

This development comes at a time when the government is looking into cases of alleged tax evasion by Oppo, Vivo India, and Xiaomi. Investigation agencies are also looking into alleged money laundering violations by Chinese mobile makers.

Brands that will be affected if the ban is implemented are Realme, Xiaomi, Vivo, Tecno, Itel, and Infinix. Whenever it is launched, JioPhone 5G, which will be reportedly priced between Rs 9,000 and Rs 12,000, could benefit from such a ban. Meanwhile, other brands, including Indian ones, will have an opportunity to increase their capacity. However, that might not be possible in the short term, which might lead to a supply shortage.