Union Budget 2023 may bring hope for India’s smartphone industry; here’s why

The Union Budget 2023–24 is an institution deeply woven into India’s economic fabric and for company’s large and small, Indian or MNC, a potential harbinger for growth in good times and bad. Budget recommendations become even more important and serve as a bellwether for citizens and businesses alike. Budget 2023 is no exception, especially given the possibility of a global slowdown, could well prove to be the proverbial light at the end of the tunnel for enterprises to help drive growth.

Today more than ever, India is considered the bedrock of technological innovation across the globe. Indian tech prowess has been a global phenomenon for decades effectively contributing to the growth and development of sectors across – manufacturing, aviation, ecommerce, media, sustainability and much more. On the telecom side, the advent of 4G led to a wide scale impact and enabled catalytic changes in the way people and business interact, transact and engage.

To keep this growth intact and leverage this upward movement to the maximum, it is imperative for stakeholders to adopt out-of-the-box measures that reflect the increased sources of growth in the consumer durables and electronics sector. It is no surprise that smartphones have been the single most important drivers and enablers of this transformation.

Indian smartphone market stayed hydrated in 2022

According to Counterpoint, the Indian smartphone market suffered reverses in 2022. Component shortages that hit the market at the start of the year were a significant contributing element. Though the first half of the year saw some resolution of these problems, the projected recovery of consumer demand was not achieved. Since rising component prices and inflation resulted in higher retail prices, this sluggish demand was particularly noticeable in the entry and mid-level price bands.

The premium market in India though performed well in 2022 despite these obstacles, with prices above Rs 30,000 reaching a new high. The market's premiumization, which resulted in the highest average selling price (ASP) ever of around Rs 20,000, contributed to good revenue growth. The challenge has been in the entry level, Budget segment and mid-level segments. While supply issues due to component shortages was one reason and did resolve in the second half of the year, inflationary pressures continued to inhibit demand in this price-sensitive segment and led to lower feature-phone to smartphone migration, thereby impacting the industry. Policy-level intervention to address this slump in demand in the entry and mid-level price bands and provide a much needed boost to propel this segment will result in an all-encompassing and holistic growth. This could include, among other things, simplified custom duties on components as well as a reduction on GST levied on Budget and entry-level handsets to drive growth.

Budget 2023-24 - The Rising Sun for the Indian smartphone landscape

The buzzword for 2023 is 5G and up to 45 per cent of smartphones sold this year are expected to be 5G devices. Relevant incentives to the smartphone industry can help make 5G devices more affordable for the common man. A greater rollout of 5G devices will also enable the quicker rollout of 5G services across the country by the telcos. In fact, industry experts believe that India is going to witness the fastest rollout of 5G which will be at least three times faster than what we have seen in 4G. But that’s not all. We need to be cognizant of the fact that much of India still lives on the wrong side of the digital divide. While great strides are being made to address this challenge, one way to continue reducing this divide is to offer more incentives for Budget smartphones - to make them more affordable.

Lastly, India's electronics industry is also looking for some accommodations in the Union Budget 2023-24, which may directly or indirectly benefit the smartphone manufacturers and suppliers. Ahead of the Budget, many organizations of the electronics industry have petitioned the Indian government to lower the tariffs on parts and components. The India Cellular and Electronics Association (ICEA) has urged the removal of smaller tariffs of 2.75 per cent that have no positive effects and merely affect legitimate businesses. With a Budgeted investment of at least Rs 10,000 crores, it has urged the government to extend the Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS) for an additional period of 5 years. The electronics sector has also requested an exemption on expensive phones and a reduction in the customs charge ceiling to INR 4,000 for smartphones costing more than INR 20,000. 20 per cent is the current duty rate.

One for the other

India's smartphone market has done well and outperformed many other sectors despite the decline in 2022. The country presently has more than 600 million smartphone users, and as more feature phone users switch to smartphones, this number is projected to rise over time. In 2023 and beyond, the market will be driven by these users' replacement requirements. Long-term market growth will be driven by a sizable installed base, local smartphone manufacturer, supply chain development, and the creation of fresh use cases. The upcoming Budget could reveal a long-term blueprint towards this goal.

Views are personal. The author is CEO realme India, VP, realme and President, realme International Business Group.

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