Across all demographics, a 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, which is anticipated to rise as more feature phone users switch to smartphones.
While people worldwide 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 decrease in total smartphone demand despite increasing high-end smartphone sales. 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 segment players managed to navigate these challenges owing to their agile supply chain operation and robust strategies. As we enter the year 2023, we see a bright picture for the smartphone segment due to India’s youth-oriented solid economy and their interest in being a part of a genuinely digitized 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 smartphones
Mobile phones have provided Indians with numerous new opportunities to carry out essential tasks, including communications, education, transportation, handling emergencies, 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 primary 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 percent to 175 million units. The rural sector is anticipated to develop at a CAGR of 6 percent from 2021 to 2026, while the urban sector is expected to grow at a CAGR of 2.5 percent. 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 5G
A lot more users are excitedly anticipating experiencing the benefits of 5G. In fact, according to a Counterpoint analysis, the market penetration of 5 G-equipped smartphones reached 51 percent 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 expected to become the fastest-adopted mobile technology. By 2026, an additional 135 million smartphones are expected to be shipped globally following the rollout of 5G.
Government initiatives will revolutionize smartphone manufacturing and usage in India.
There is a legislative push to increase mobile phone penetration in India today. Recently, the state of Rajasthan announced a tender for the purchase and distribution of smartphones to women in 2023. 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 percent of all smartphone replacements soon.
The 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 replacements will be split between 95 percent of new smartphones and 5 percent of used smartphones in the urban market in 2026. The rural population is anticipated to follow a similar pattern, with a four-year average phone lifespan. In 2026, new gadgets are expected to account for about 80 percent of replacements, while used devices will account for 20 percent. It is anticipated that smartphones will eventually replace feature phones as the number of smartphone users increases.
The long-term picture looks favorable.
The Indian mobile phone market is expanding despite the global decline (by 12 percent 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 need 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 new use cases. By FY26, it is anticipated that the global mobile phone market will earn INR 2.4 trillion in revenue, growing at a 14.5 percent compound annual growth rate (CAGR). In contrast, the Indian mobile phone market is anticipated to increase in size by 9.7 percent 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.