Indian smartphone industry holds a positive future despite recent global headwinds

Across all demographics, a whole new generation of Indians has embraced mobile technologies, particularly smartphones, to reap the benefits of the digital economy. The smartphone has rightfully replaced the functions of many other devices, whether it be a music player, a camera, or even a device facilitating financial transactions. India currently has more than 600 million smartphone users, a number that is anticipated to rise as more feature phone users switch to smartphones.

While people across the world continue to benefit from the smartphone-powered Digital economy, there is an anticipation of a decline in the segment owing to the current and some arising challenges. If we look at the numbers, the third quarter of 2022 saw a decline in total smartphone demand despite an increase in high-end smartphone sales volume. This raises the crucial question: Is India also facing the effects of the global slowdown?

According to Counterpoint, the Indian smartphone market did eventually take a hit in the year 2022. Component shortages that hit the market at the start of the year were a significant contributing element, among others. Some of the players in the segment did manage to navigate these challenges owing to their agile supply chain operation and strong strategies. As we enter the year 2023, we do see a bright picture for the smartphone segment owing to India’s strong youth-oriented economy and their interest to be a part of a truly digitised India. Therefore, while the economic imbalances across the world continue to pose business challenges, here’s why the Indian smartphone market may have a better time in the coming year:

Transitioning from feature phones to smartphonesMobile phones have provided Indians with numerous new opportunities to carry out essential tasks, including communications, education, transportation, handling emergency situations, e-commerce, and interacting with the government. In fact, as per a study, a large portion of those surveyed do not own a desktop computer, laptop, or tablet. Their smartphone served as both the main and only platform for accessing the digital world for them.

Except for the Covid hit in 2020, the Indian market has grown steadily over the past five years. In 2023, the market is expected to increase by 10 per cent to 175 million units. The rural sector is anticipated to develop at a CAGR of 6 per cent from 2021 to 2026, while the urban sector is anticipated to grow at a CAGR of 2.5 per cent. The need to implement fintech, e-health, and e-learning will drive this rising demand for smartphones, which is anticipated to stimulate higher Internet adoption rates.

Diving in with full speed, thanks to 5GA lot more users are excitedly anticipating to experience the benefits of 5G. In fact, according to a Counterpoint analysis, the market penetration of 5G equipped smartphones reached 51 per cent at the beginning of 2022, exceeding that of 4G handsets. Although 5G smartphones have attracted a lot of attention in the industry and are currently accessible in many Indian cities, barely one-third of the market is anticipated to be made up of them in 2022. Due to its many applications, including remote healthcare and high-speed gaming, it is anticipated to become the fastest-adopted mobile technology. By 2026, an additional 135 million smartphones are anticipated to be shipped globally following the rollout of 5G.

Government initiatives will revolutionize smartphone manufacturing and usage in IndiaThere is a legislative push to increase mobile phone penetration in India today. Recently, a tender for the purchase and distribution of smartphones to women in 2023 has been announced by the state of Rajasthan. Also, the government’s strong backing for the BharatNet effort to fiberize rural and isolated areas by 2025 and the proposed USD 10 billion (approximately Rs. 77,600 crores) incentive package to expand semiconductor production in India are sure to increase smartphone sales in India.

New smartphones will make up 95 per cent of all smartphone replacements soonThe smartphone market has shown a relatively quick replacement rate as customer needs in India keep rising. The typical lifespan of a mobile device in metropolitan areas is three years. Deloitte predicts that in the urban market, replacements will be split between 95 per cent of new smartphones and 5 per cent of used smartphones in 2026. The rural population is anticipated to follow a similar pattern, with a four-year average phone lifespan. In 2026, new gadgets are anticipated to account for about 80 per cent of replacements, while used devices will account for 20 per cent. It is anticipated that feature phones will eventually be replaced by smartphones as the number of smartphone users increases.

The long-term picture looks favourableThe Indian mobile phone market is expanding despite the global decline (by 12 per cent year on year to 301 million units in Q3 2022) in smartphone demand. For every stakeholder of the mobile value chain, this offers significant opportunity. The demand for cell phones will only increase as more and more Indians go online. Long-term market growth will be driven by a sizable installed base, feature phone-to-smartphone migration, local smartphone manufacturers, supply chain development, and the creation of fresh use cases. By FY26, it is anticipated that the global mobile phone market would earn INR 2.4 trillion in revenue, growing at a 14.5 per cent compound annual growth rate (CAGR), while the Indian mobile phone market is anticipated to increase in size by 9.7 per cent CAGR to reach 370 million units by FY26.

With the anticipated recovery in the economy, these customers will probably be more inclined to buy a new smartphone in 2023. In turn, this might result in a rise in smartphone demand in the upcoming year.

The author, Madhav Sheth, is the CEO of realme India, Vice President, realme and President, realme International Business Group.