Why smartphones are key for India's digital ambitions

Smartphones in India are playing a critical role in the country’s digital transformation, but there are still hundreds of millions of people in the country who do not own the devices.

And that is creating enormous opportunities for manufacturers and companies across a range of sectors to tap into a new market — but it also means there is still a long way to go in the country’s digital transformation, analysts say.

“India's digital revolution has got an unprecedented fillip from the wider adoption of smartphone technology,” says Harsh S Kedia, chief executive of Auburn Digital Solutions, a digital marketing agency in India.

“This has benefitted a range of sectors with financial technology, e-commerce, healthcare, education, marketing and social media harnessing the maximum gains from the rising adoption of smartphones.”

For most people in India, a smartphone is the primary way to access the internet.

There are more than 600 million smartphone users in the world’s second most populous country, according to Counterpoint Research.

Even so, this leaves a significant percentage of the population of some 1.4 billon who are yet to buy smartphones and move online.

Still, the rapid expansion of smartphone use across the country in recent years has allowed millions of Indians to get online for the first time.

The uptick in connectivity is a critical part of the push by Prime Minister Narendra Modi's government towards its vision for a “Digital India”, aimed at increasing internet accessibility and empowering people digitally.

The initiative could boost the country’s digital economy to $1 trillion by 2025, from $200 billion in 2018, according to consulting firm McKinsey.

“Over the last 10 years, the penetration of smartphones and mobile internet have increased by 60 per cent thereby bridging the urban-rural divide in India at an incredible pace,” says Vishesh Sharma, chief marketing officer at Ashika Group, a Mumbai-based financial services group.

“The transformation of the cash-dominated India to a digital economy is the most prominent evidence of the impact that higher mobile penetration, improved connectivity and faster and cheaper internet packages have created.”

India has some of the cheapest data rates in the world and increased use of smartphones has helped expand the customer base for e-commerce companies. It has also opened up the banking sector's reach in rural areas, where many people were unbanked, and created many more options for financial transactions.

“The void has been bridged in access to financial services thanks to the prevalence of smartphones — be it credit application, digital money transfers, making payments without bank accounts,” says Vinit Khandare, chief executive and founder of MyFundBazaar, an investment platform.

The improvement in digital capabilities and greater connectivity will “quickly and radically change nearly every sector of India’s economy,” according to McKinsey.

“That is likely to both create significant economic value and change the nature of work for tens of millions of Indians.”

Despite risks of the digital divide increasing due to the uneven adoption among businesses, the growth potential makes India one of the most important markets for many brands.

The growth in smartphone use across the country means there is fierce competition among smartphone manufacturers.

India’s smartphone shipments — the number of phones delivered by manufacturers to retailers — grew 9 per cent in the April to June quarter to reach almost 37 million units, according to the latest research from Counterpoint.

China's Xiaomi remained the market leader in terms of smartphone shipments in India, capturing a 19 per cent share of the market, followed by South Korean brand Samsung with a similar sized market share, and Chinese brand Vivo, which came in with a slice of 14 per cent, Counterpoint's data shows.

“The smartphone retail average selling price is also witnessing a growth trend,” said Shilpi Jain, research analyst at Counterpoint.

“It grew 10 cent year on year, driven by an increasing share of the higher price segments. The more than 20,000 rupee [$251] price band’s share reached the highest ever in the second quarter 2022, crossing the 22 per cent mark.”

Growth in upper and premium segments has been spurred by the availability of financing schemes aimed at increasing device affordability, she said.

5G smartphones are also gaining a lot of traction ahead of the planned launch of the network in India later this year.

Shipments of 5G smartphones accounted for 29 per cent of overall shipments in the second quarter of 2022, the highest ever, according to Counterpoint.

Reliance Industries chairman Mukesh Ambani aims to capitalise on more users migrating to 5G.

At his conglomerate’s annual general meeting last week, he announced that his telecom company Jio plans to tie up with Google to launch an “ultra affordable” 5G smartphone.

Jio aims to roll out its fifth-generation network in the next two months, and then expand connectivity across India to cover the country by the end of next year.

“Jio benefits from the network access it sells, and so it can afford for their phones to be loss leaders to attract subscribers,” says Utkarsh Sinha, managing director of Bexley Advisors, a boutique investment bank based in Mumbai.

“We can expect a similar strategy with their 5G phone.”

At the premium end of the market, Apple is also increasingly focusing on opportunities in India's smartphone market.

The US technology major is looking at ramping up manufacturing in India and producing its upcoming iPhone 14 in the country, as it looks to diversify from China, according to Bloomberg.

“The massive rollout of 5G and the success that manufacturers had during the 4G wave in acquiring new customers and deepening market penetration, coupled with governmental incentives will give global makers comfort to invest in local manufacturing,” says Mr Sinha.

“We could see hardware being a big part of the 5G story in India.”

Given Apple’s high product pricing, it is unable to appeal to the masses in India, who simply cannot afford its devices.

But the brand has enormous appeal among wealthier buyers.

Apple's sales in India grew by 63 per cent in the second quarter of the year on a relatively small base, according to Counterpoint.

Despite the uptick in digitalisation and mobile use in India, the market remains unsaturated and there is room for growth.

“I feel people in [smaller cities] are less exposed towards the utilisation of digital media,” says Lalit Arora, the founder of KW Academy of Excellence and a digital network marketing coach.

“They have been in the learning process post the Covid-19 situation in India. But still, they do not have enough education on how to utilise these social media apps.”