Smartphones still not 'made' in India; key parts still imported from China

India has recently toppled Vietnam to become the second largest mobile phone maker after China. However, India still relies on imported parts from China for the assembly.

While the assembly of mobile phones in India has emerged as a bright spot for the economy over the past four years, the manufacturing of parts which is the logical next step in the country's ambition of becoming a smartphone-making hub, is still stuck in uncertainty.

India has recently toppled Vietnam to become the second largest mobile phone maker after China. Thanks to the Phase Manufacturing Programme (PMP), the country is home to 268 mobile phone assembling units, according to India Cellular and Electronics Association estimates. However, India still relies on imported parts from China for the assembly because of the lack of an ecosystem of component manufacturers here.

"There is a lot of uncertainty around India's duty structure for mobile phones. The issue has been raised in the World Trade Organisation and the US has taken a stand as far as duty is concerned. If there is clarity that this duty is here to stay, say, for at least five years, big-ticket investments in component manufacturing will start coming in. After that, the ecosystem will develop and the duty protection won't be needed anymore,"said Atul B Lall, MD of Dixon Technologies which assembles mobiles for brands.

The PMP levies duty on key mobile parts in phases to curb import of components and localise them. So far, a basic customs duty (BCD) is levied on batteries, chargers and adaptors etc.

Manufacturers have also forayed into the assembly of Printed Circuit Boards (PCBs) or otherboards, which constitute up to 60 per cent of a phone. The target for 2019-20 includes assembly of display and touch glass.

Meanwhile, international giants like Samsung, Xiaomi, Oppo and Vivo have been pumping money into India, the second largest market for smartphones, to boost capacities of factories where their phones are assembled.

In July, Korean smartphone maker Samsung set up the world's largest mobile phone factory in Noida. Recently, China's Vivo said it will invest Rs 4,000 crore over the next four years to set up another factory in Uttar Pradesh. "Till March 2018, Vivo invested over Rs 200 crore more to set up a surface-mount technology unit for PCB assembly," said Vivo India's brand strategy director, Nipun Marya.

Vivo has reportedly said they are keen on expanding into component making soon. Fellow Chinese player and rival Oppo is also supposedly holding talks with component makers about opening units here for its upcoming industrial park in Greater Noida. The expansions are sure to draw in more Korean, Chinese and Taiwanese component makers to set up shop in India and kick start a components ecosystem as there is already increasing interest from them, smaller manufacturers say.

Recently, China's Xiaomi held a meeting of its global suppliers to explore the possibility of opening units in India. The firm had said $2.5 billion investment would come into India if the suppliers set up shop in the country. "Component manufacturing requires heavy investments. It doesn't make sense for component makers to come to India just to make for India because they are already working with partners elsewhere for this. At least if the neighbouring countries offer a small market, they can establish themselves here," says associate research manager at International Data Corporation, Jaipal Singh.