Think exports from India and what usually come to mind are software services, pharmaceuticals and textiles. Maybe it is time to take a closer look. Exports of electronic goods from India jumped 50 per cent in 2022-23―from $15.66 billion the previous year to $23.57 billion. India’s readymade garments exports in the same year was just around $16 billion.
Electronic goods was the sixth largest commodity group in India’s goods exports last financial year and had a share of more than 5 per cent in total merchandise exports. While it has been steadily improving in the past five years, the trend accelerated in 2022-23, said Madhavi Arora, lead economist at Emkay Global Financial Services. Exports of electronic goods are growing at four times the rate of total goods exports.
Interestingly, a big driver of the trend is mobile phones. Exports of mobile phones from India touched Rs90,000 crore in 2022-23, according to India Cellular and Electronics Association. “India’s smartphone exports were as low as $0.4 billion in FY14, even falling to nil the following year, but the China plus one story (a strategy where companies avoid investing only in China), as well as the government’s production-linked incentive (PLI), helped boost external shipments to $11.1 billion in FY23,” said Arora.
Apple, makers of the iPhone, accounted for about half of the mobile phone exports from India. Not surprisingly, increasing production in India was on agenda when Apple CEO Tim Cook met Prime Minister Narendra Modi and Union minister Rajeev Chandrasekhar during his recent visit.
It has been only five years since Apple began manufacturing iPhones in India. But it quickly ramped it up, tripling production in the last financial year. India now accounts for around 3 per cent of Apple’s total iPhone production.
Apple is expected to further ramp up local assembly in India. Foxconn of Taiwan, a major manufacturer for Apple, is planning to set up a new factory in Karnataka. The investment is estimated to be around $700 million. Tata Group has been in talks with Wistron, another manufacturer for Apple, to acquire its iPhone assembly plant in Karnataka. Apple is expected to start assembling Airpods and iPads in India as it looks to grow its local production share to around 25 per cent.
Making in India: Mobile phone maker Vivo’s plant at Greater Noida.
What works in India’s favour are Apple’s attempts to reduce its dependence on China for manufacturing and India’s potential as a growing market for its products. The Covid pandemic disrupted supply chains globally. China’s zero Covid policy and geopolitical tensions with the US forced companies to look at alternative markets to boost production. The PLI schemes rolled out by the Modi government also made India attractive for companies looking for alternatives to China.
“The PLI scheme has been a significant driver for local manufacturing in India,” said A. Gururaj, managing director, Optiemus Electronics, a homegrown contract manufacturer. Companies are also taking advantage of the skilled labour force in the country, he said.
The PLI scheme extends an incentive of 4 per cent to 6 per cent on incremental sales of goods manufactured in India in a few segments. Under the PLI scheme for smartphones, the government allocated incentives worth 040,951 crore between 2021 and 2026.
Manufacturing sops apart, India’s 1.4 billion population presents an attractive opportunity for these companies. “India’s emergence as a destination for electronics companies is primarily driven by the growing demand for electronic products in the country. India has a large and rapidly growing middle class, which is driving demand for consumer electronics such as smartphones, laptops and several other electronic devices,” said Gururaj.
India is a booming market for expensive phones. “I see a tremendous potential in the over Rs30,000 and Rs50,000 market for mobile phones,” said Yogendra Sriramula, head of brand strategy at the mobile maker Vivo India. “During the pandemic, the market was need-based. Now it is shifting towards upgrades.”
In 2022, Apple, which makes only high-end phones, sold 6.7 million iPhones in India, compared with 4.8 million in 2021, according to market analyst IDC. It is, however, just a fraction of Apple’s global shipments of 226.4 million iPhones in 2022. Also, iPhone’s share in India’s overall smartphone market of 144 million is quite small. However, India is one of the few markets where Apple is growing in double digits.
Two brands―Apple and Samsung―dominate India’s premium mobile phone market. Apple has a market share of 60 per cent in this segment, and Samsung 21 per cent. “Before the pandemic, Apple’s total market share was just 2 per cent. In 2022, it is more than 6 per cent, which also means that people are buying more and more expensive phones,” said Neil Shah, vice-president of research at Counterpoint.
Cook was in India for opening Apple retail stores in Mumbai and Delhi, which is seen as an indicator of the importance of the Indian market. “The moment an Apple store enters the country, it is unfurling the Apple flag and saying we are here and we have got big plans. India is a market opportunity that no one can deny and therefore this is a big moment for the company,” said Harish Bijoor, brand expert and founder of Harish Bijoor Consults.
Apple, however, is unlikely to get a walkover in India as other phone manufacturers also have big plans and are taking advantage of PLI. “At least 90 per cent of the phones in the market, barring a few flagships, are now assembled in India,” said Navkendar Singh, associate vice-president IDC India. Till 2014, more than 90 per cent of mobile phones sold in India were being imported.
Chinese smartphone maker Vivo said it would invest Rs1,100 crore by the end of 2023 to expand its manufacturing capacity in the country. “We have an existing factory in Greater Noida set up in 2015. Now with this new investment, a new factory will come up in a location nearby, spread over 169 acres,” said Sriramula. The company increased its capacity from 50 million to 60 million in the beginning of 2022. It will make it 120 million in a phased manner. Vivo has been exporting smartphones made in India since 2022, and it plans to export one million Indian-made smartphones in 2023.
It is not just mobile phones. India has a $100 billion opportunity in manufacturing laptops and tablets in the country, according to electronics manufacturing body ICEA.
Vedanta recently signed memoranda of understanding with several Korean companies to establish an electronics manufacturing hub in India. The company is setting up a semiconductor and display fab unit in Gujarat.
With its substantial untapped market, India presents huge opportunity for growth. For instance, India has just 600 million smartphone users in a population of 1.4 billion. So, there will be enormous scope to boost sales by expanding the user base and upgrading the feature phone users, said Sriramula. In other segments, too, the penetration levels are low in comparison with global peers. This will drive more investments in local manufacturing in the years to come.
GAINING MOMENTUM
Exports of electronic goods from India jumped from $15.66 billion to $23.57 billion in 2022-23
Electronic goods was the sixth largest commodity group in India’s goods exports
India exported mobile phones worth $11.1 billion in 2022-23
India now accounts for around 3% of Apple’s total iPhone production
The government allocated production-linked incentives worth Rs40,951 crore between 2021 and 2026