The Indian handset industry went through a roller-coaster ride in 2020 with Covid-19 drying up supply channels while also impacting the demand for smartphones for most of the year. The initial months of 2020 were perhaps the most difficult, with countries across the globe announcing lockdowns, thereby halting production across all major manufacturing centres. Nonetheless, the market, started its recovery trajectory when lockdown norms were somewhat relaxed.
Meanwhile, the Indian government launched the production-linked incentive (PLI) scheme in an effort to boost domestic handset manufacturing. This is expected to further aid the recovery, but the impact of the policy will likely become visible only in the long run.
Covid-19 ushered in a grim period for the handset industry globally, and India was no exception. Supply chains got disrupted and the demand for handsets dwindled, resulting in severe financial implications for the market. During India’s strict lockdown, all handset production and manufacturing lines dried up as handset manufacturers temporarily shut down operations following the government’s mandate. For instance, Foxconn and Wistron Corporation suspended their production in India until April 14, 2020. Similarly, handset manufacturers Xiaomi, Lenovo-Motorola and Lava temporarily shut down their handset factories in various parts of the country, beginning March 24, 2020. While Xiaomi halted production at four factories in Tamil Nadu and Noida, Lava shut down its manufacturing facility in Noida, which has a manufacturing capacity of 3 million units per month and exports 2 million units every year. Oppo, Vivo and Samsung also temporarily suspended production at their respective Greater Noida facilities.
According to Canalys estimates, smartphone shipments in India witnessed a decline of 48 per cent in the second quarter of financial year 2021 owing to the Covid-19 pandemic. Only 17.3 million smartphone units were shipped in that quarter.
The Covid-19 blow to the Indian handset market has been tough, and recovery will not be easy. Several industry experts have pointed out that the impact of this on the marketing and business strategies of various key players will be deep.
Market status 2020
According to Canalys, Xiaomi maintained its lead in India, with 31 per cent overall market share during the second quarter of financial year 2021. The handset manufacturer shipped 5.3 million smartphone units in that quarter. In second place was Vivo with 3.7 million units shipped and a market share of 21.3 per cent. Meanwhile, Samsung and Oppo held the third and fourth spots with 2.9 million and 2.2 million smartphones shipped respectively.
Policy impetus through the PLI scheme
Despite the government’s concerted efforts over the years to indigenise handset production, the results have not been very noteworthy. As per industry reports, the value of smartphone imports in July 2020 stood at Rs 20.85 billion, while that for handset imports touched a three-year high of Rs 22.25 billion in June 2020.
However, this could change over the coming months and years. Early in 2020, the government launched the PLI scheme with a financial package of Rs 410 billion. Under the scheme, eligible electronic manufacturing companies will be provided an incentive of 4-6 per cent on incremental sales (over the base year) of goods manufactured in India and covered under target segments, over the next five years. The incentives have been applicable since August 1, 2020.
The government launched the PLI scheme with the aim of establishing India as an export hub for electronics goods, including mobile phones. The scheme aims to boost domestic manufacturing and attract large investments in mobile phone manufacturing and electronic components, including assembly, testing, marking and packaging units. Foxconn and Wistron soon applied for the scheme, along with various local handset manufacturers such as Karbonn, Lava and Dixon Technologies. As of October 2020, the government had cleared 16 companies under three categories of PLI. These included five global handset firms – Apple’s contract manufacturers Foxconn, Wistron and Pegatron, as well as Samsung and Rising Star – five domestic players and six component manufacturers.
The government is now planning to seek a second round of applications under the PLI scheme. To this end, the government is actively engaged with the key suppliers of Apple iPhone-makers (Foxconn, Wistron and Pegatron), and Samsung for participation.
The way forward
Although 2020 has been rocky for handset players, the road ahead does seem promising with 5G coming in. This will offer a host of opportunities and therefore aid recovery. Further, analysts point out that handset players can explore new sales and marketing strategies to cope better with the new market conditions.
Meanwhile, the PLI scheme, which offers lucrative benefits to manufacturers, can prove to be a game changer for this segment. According to Credit Suisse’s analysis, if the PLI targets are met, additional handset manufacturing of about 10 per cent of the global market, by value and volume, could move to India by 2023-24. Further, India’s trade deficit could improve by $24 billion.
By Diksha Sharma