India’s dream of becoming a global smartphone manufacturing powerhouse is facing hurdles, as nearly half of the country’s mobile phone production capacity remains idle. Established under the government’s production-linked incentive (PLI) scheme, these facilities were intended to position India as a key competitor to Chinese smartphone manufacturing units. However, declining domestic and global demand has significantly impacted their performance, leaving the industry struggling to achieve its ambitious targets.

According to a report by Counterpoint Research, India’s mobile phone production capacity surpassed 500 million units by the end of 2024. However, actual production remains far below this level at around 250 million units annually, with 200 million units serving the domestic market and the rest, predominantly iPhones, being exported. The Electronic Industries Association of India (ELCINA) estimates the capacity to be between 400-420 million units, highlighting discrepancies in the data but reinforcing the significant underutilization of capacity.

Key Players Thrive While Domestic Mobile Brands Struggle

Key manufacturers benefiting from the PLI scheme, such as Dixon Technologies, Samsung Electronics, Tata Electronics, and Hon Hai (Foxconn), have been leading production efforts. These companies have leveraged government incentives to drive production and, in some cases, expand capacity. For instance, Foxconn and Tata Electronics have ramped up operations, particularly for iPhone production, which has been the primary contributor to exports.

In contrast, domestic manufacturers like Lava International, Karbonn, and Micromax have faced significant challenges. These smaller players have struggled to meet their production targets, often shifting focus to alternative sectors such as telecom equipment and wearables, or shutting down operations altogether. The lack of profitability in entry-level smartphone production has pushed these companies away from the mobile manufacturing market.

Weak Smartphone Demand Impacts India’s Mobile Industry

One of the primary reasons for the slowdown in smartphone production is the shrinking demand for feature phones and entry-level smartphones. Industry executives and analysts note that demand began declining post-Covid, as the initial surge in purchases driven by pent-up demand faded.

Research by CMR indicates that feature phone shipments dropped by 14% year-on-year in the third quarter of FY2024-25, with 4G feature phone shipments experiencing a sharp 46% decline. At the same time, smartphone shipments have remained stagnant, with only 1% growth in 2023 after a 10% decline in 2022.

This slowdown has been particularly challenging for manufacturers targeting budget-conscious consumers, as inflation and reduced purchasing power have led to weaker sales of entry-level devices.

India’s Smartphone Manufacturing Faces Structural Hurdles

The underperformance of India’s smartphone manufacturing industry also highlights structural challenges. While the government’s PLI scheme has provided critical incentives, the industry has not been able to fully capitalize on the opportunity. Smaller domestic manufacturers have found it difficult to scale operations, compete with global players, or invest in advanced technologies.

Furthermore, the heavy reliance on iPhone production for exports has created a lopsided manufacturing ecosystem. While companies like Foxconn, Pegatron, and Tata Electronics have expanded their capacities, other manufacturers catering to broader market segments have been unable to sustain growth.

How India’s Mobile Manufacturing Can Recover by 2025

Despite the current challenges, industry analysts believe that India’s underutilized manufacturing capacity could become a strategic advantage in the near future. A global surge in demand, anticipated from 2025, is expected to boost utilization rates and drive production growth.

Since the introduction of the PLI scheme, India’s smartphone production capacity has grown by 35%, with investments exceeding government targets. For example, Foxconn alone has invested ₹9,100 crore, surpassing the target of ₹7,000 crore, to expand its production capabilities. Similarly, companies like Dixon Technologies have acquired additional facilities to meet growing export demand, achieving capacity utilization rates of over 60%.

PLI Scheme: Successes and Challenges in Mobile Manufacturing

The government’s PLI scheme has been a catalyst for growth in India’s smartphone manufacturing industry, attracting significant investments from global players. The scheme offers incentives to manufacturers who meet specific production targets, encouraging them to expand capacity and focus on exports. However, the underperformance of smaller domestic players underscores the need for more targeted support to ensure they can compete in a highly competitive market.

Balancing Demand and Capacity in India’s Smartphone Sector

While the industry is currently grappling with weak demand and underutilized capacity, the future holds promise. The anticipated increase in global smartphone demand from 2025 could help manufacturers scale operations and improve utilization rates. Companies that have already invested in advanced technologies and expanded their facilities, such as Foxconn and Tata Electronics, are well-positioned to capitalize on this growth.

Moreover, the shift toward 5G-enabled devices, IoT, and AI-powered technologies is expected to create new opportunities for manufacturers. As these technologies gain traction, they will drive demand for advanced smartphones and related devices, creating a more sustainable growth trajectory for India’s mobile manufacturing sector.

India’s Smartphone Manufacturing at a Crossroads

India’s mobile manufacturing sector is at a crossroads. While the current challenges—driven by weak demand, underutilized capacity, and structural inefficiencies—have slowed growth, the industry’s potential remains significant. The combination of government incentives, increased investments, and an expected global demand surge positions India to play a more prominent role in the global smartphone manufacturing ecosystem.

To fully realize this potential, it will be crucial for policymakers and industry leaders to address existing bottlenecks, support smaller manufacturers, and diversify beyond reliance on a few key players and products. With the right strategies, India could emerge as a leading global hub for smartphone production in the years to come.