India has made inroads into one of the most competitive global markets: smartphone manufacturing. Smartphone exports are now held up as the clearest success of the production-linked incentive (PLI) scheme. Electronics exports crossed $47 billion in 2025, driven largely by phones.
For decades, India aspired to join the electronics manufacturing wave that reshaped East Asia but remained mostly a consumer market. The recent export surge has been driven by iPhones, as Apple ramped up production in India after incentives altered its cost calculus.
The headline numbers are strong. Electronics exports grew 37% year-on-year, making the sector India’s third-largest export category and the fastest-growing among the top ten. Two-thirds of these exports came from smartphones, and a single multinational accounted for nearly half of total electronics exports. That concentration underlines the effectiveness of PLI. It also signals a vulnerability. India has entered global value chains, but largely at the assembly end, where value addition is thin.
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PLI and the assembly-led model
The PLI scheme worked because it was simple. By linking incentives directly to output and exports, it reduced the cost of shifting final assembly to India at a moment when firms were diversifying away from China. Apple’s contract manufacturers scaled up quickly. India became an export base for iPhones in a few years. In an industry with high sunk costs and sticky supply chains, that speed matters.
The harder question is what follows. In a typical smartphone, most value sits in design, software, semiconductors, advanced components and intellectual property. Assembly, testing and packaging are labour-intensive and visible, but capture a small share. Estimates put final assembly at under 10% of the value of a high-end phone. If exports remain concentrated here, foreign exchange gains and jobs will coexist with modest productivity growth and weak technological spillovers.
Value addition gap in electronics manufacturing
China began in a similar place in the 1990s, hosting assembly lines for global brands. Its trajectory changed through systematic upgrading: investments in components, logistics, skills and eventually domestic firms across the value chain. Vietnam, now India’s closest comparator, has moved into printed circuit boards, camera modules and other components even as it continues to assemble phones.
India still imports most high-value components, including semiconductors, displays and precision sensors. This is the clearest constraint on domestic value addition.
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Building component ecosystems
The current boom should be treated as leverage, not an end point. Large-scale assembly creates predictable demand and lowers entry barriers for suppliers. Policy now needs to pivot from output-linked incentives to ecosystem building. That means faster approvals, reliable infrastructure for component clusters, and incentives targeted at sub-assemblies rather than finished products.
Trade policy will matter. Tariffs that inflate nominal value addition can also erode export competitiveness. If critical inputs become expensive or unreliable, firms will shift production elsewhere. The balance between protection and access will determine whether component manufacturing scales.
Skills constraints and technological churn
Labour is another binding constraint. Electronics manufacturing depends on precision engineering as much as scale. India has abundant labour but shortages persist in technicians, toolmakers and process engineers who can maintain quality. Countries that succeeded invested heavily in vocational training tied to production hubs, often with firms playing a direct role.
India’s skilling ecosystem remains fragmented. Without tighter integration with manufacturing clusters, the move into higher-value tasks will be slow.
Global electronics is entering a phase of churn, driven by artificial intelligence, electric mobility and the reconfiguration of semiconductor supply chains. India’s push into semiconductor fabrication is capital-intensive and risky, but it complements the electronics export story. Even partial success in chip assembly, testing and packaging would raise domestic value addition and reduce import dependence. The difficulty is that such efforts demand policy consistency over decades.
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Smartphone exports: Concentration risk and domestic champions
The Apple numbers look reassuring, but concentration risk is obvious. Dependence on a single firm or product category leaves the sector exposed to shifts in corporate strategy or global demand. Diversifying into consumer electronics, industrial electronics, medical devices and telecom equipment would spread risk and deepen capabilities.
Encouraging domestic firms to scale up matters just as much. Without local champions, India will remain a line item in multinational balance sheets rather than a manufacturing hub in its own right.
From momentum to structure
Electronics exports have become a symbol of India’s manufacturing ambition, with electoral and diplomatic resonance. That makes course correction politically harder and economically necessary. Transparent evaluation of incentive schemes, clear sunset clauses and a willingness to recalibrate based on outcomes will decide whether the current momentum hardens into a structural shift.
What remains largely unexamined is the fiscal price of this success. PLI shifts risk from firms to the exchequer, and the scale of incentives relative to domestic value addition warrants scrutiny. When exports are concentrated in low-margin assembly and dominated by a handful of firms, the public return per rupee spent becomes harder to justify.
The counterfactual also matters. With global supply chains already diversifying away from China, some relocation to India may have occurred even without incentives at current levels. Without clearer benchmarks, sunset clauses and clawback mechanisms, India risks locking itself into a subsidy-driven equilibrium with diminishing leverage.
India has shown it can attract and scale global manufacturing when incentives, geopolitics and corporate strategy align. Climbing the value chain, broadening the base and turning assembly lines into sources of innovation will test policy patience and institutional capacity.