After running one of its most successful industrial incentive programmes, the government is preparing to extend support for smartphone manufacturing through a revamped production-linked incentive scheme. The current cycle ends on March 31. This time, the centre is considering linking incentives to domestic value-addition targets, rather than treating them as a monitored but non-binding outcome.
The smartphone PLI became the showpiece of the wider incentive programme because it lifted India’s mobile exports to record levels. But its biggest weakness is now plain. The scheme rewarded incremental investment and production. It did not require firms to meet domestic value-addition thresholds to receive the 4-6% incentive.
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Smartphone PLI and the value-addition gap
That weakness matters because the original scheme, launched in 2020, was meant not just to expand assembly but to deepen manufacturing. Yet exports rose much faster than local content. The next phase is therefore not about whether India can assemble phones at scale. It is about whether it can retain more of the value created by those exports.
Assembly creates jobs and boosts shipments abroad, but the larger economic gains lie elsewhere. Semiconductors, display panels, camera modules, printed circuit boards and specialised mechanical parts account for a large share of a smartphone’s value. If these continue to be imported, India captures only a thin slice of the value chain.
The government has already moved on that front. It has paired the proposed redesign of the smartphone PLI with a larger push on components. The Electronics Components Manufacturing Scheme, launched in April 2025, has now seen its outlay raised to Rs 40,000 crore in the 2026-27 Budget, signalling that New Delhi wants the next round of electronics policy to focus less on final assembly and more on the supplier base beneath it.
Tariff structure and India’s cost disability
The case for a redesigned PLI does not rest on incentives alone. India also faces a cost handicap against Vietnam and China. Part of that handicap lies in the tariff structure itself. Over the past year, the government has had to reduce import duties on some mobile-phone components, including printed circuit board assemblies, parts of camera modules and USB cables, after industry warnings that India risked losing competitiveness in smartphone exports if tariffs were not rationalised. Reuters also reported that the duty review was aimed at removing inverted duty structures, where raw materials or intermediate goods attract higher tariffs than the finished products they feed into.
That is a reminder that the next smartphone PLI cannot be judged only by the size of the subsidy. If firms are asked to localise faster while still carrying higher logistics, tariff and transaction costs than rival production hubs, the scheme will reproduce the same mismatch between ambition and outcome.
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China supply chains and Press Note 3
Policy constraints since 2020 also shaped the first cycle. After the Galwan clashes, India tightened scrutiny of investment from countries sharing a land border through Press Note 3. In practice, that made it much harder for Chinese component makers to enter India independently or through joint ventures. That mattered because Chinese firms dominate large parts of the global smartphone component chain.
Apple, the biggest beneficiary of the smartphone PLI, had to adapt to that reality. Instead of replicating its established China-linked supplier ecosystem inside India, it expanded production with a supply chain built more heavily around domestic and non-Chinese firms. That helped raise output and exports, but it also limited how quickly India could deepen local value addition. The contradiction was built into the policy setting: New Delhi wanted fast export growth and rapid localisation while restricting access to the component ecosystem that underpins much of global smartphone manufacturing.
Budget underuse and what it really shows
The existing scheme also left money unspent. Of the Rs 34,193 crore allocated over five years, total payouts are expected to be far lower. Much of the disbursed amount is expected to go to Apple vendors Tata Electronics and Foxconn, along with Samsung and Dixon Technologies. That underutilisation does not necessarily mean policy failure. It suggests that scale in assembly came faster than depth in manufacturing, and that the original design underestimated how long it takes to build a viable component ecosystem.
The latest Budget appears to recognise that. The shift from a narrow assembly push to a broader components strategy, backed by a Rs 40,000 crore ECMS outlay, suggests the government now accepts that export growth alone is not enough.
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Economies of scale in electronics manufacturing
There is also the problem of scale. Component makers will invest only when volumes justify the economics. Without large and predictable demand, local production of many parts remains unviable. India’s first PLI cycle created enough scale in final assembly to make the country a serious export base. It did not create enough volume across the component chain.
China did not become the world’s electronics workshop in one policy cycle. It built dense supplier clusters over decades, supported by infrastructure, logistics, skilled labour and sustained state backing. India was never going to compress that journey into five years.
That does not reduce the achievement of the first phase. It established India as a credible assembly base for global smartphone makers. It also built policy credibility by ensuring that incentives were paid under a clear framework. The next phase must preserve that predictability while shifting the reward structure towards localisation.
Local sourcing and component-sensitive incentives
That makes the proposed redesign logical. If the incentive is tied more directly to domestic value addition, firms will have a stronger financial reason to source more locally and deepen supplier networks in India.
But the design must remain realistic. A uniform localisation target across all components would merely create a new distortion. India can move faster in areas such as printed circuit board assemblies, battery packs and some camera modules. More complex segments, including display assemblies and semiconductor packaging, will need a longer runway. The policy architecture should recognise those differences rather than pretend they do not exist.
The incentive structure should also work across the value chain. If only final assemblers are rewarded, supplier localisation will lag. If both assemblers and component makers gain from deeper domestic sourcing, the economics become more persuasive.
India smartphone exports need deeper manufacturing
Global smartphone brands work on thin margins and large volumes. They will not localise critical components in India unless policy assures continuity, scale and cost competitiveness. The first PLI cycle proved India can deliver assembly and exports. The next one must prove India can hold on to more of the value.
That is the real test. India does not need another scheme that merely raises export numbers while the high-value inputs keep arriving from abroad. It needs a scheme that begins to shift the economics of production inside the country.
Moving from assembly to deeper manufacturing will be slow and difficult. But that is where the next gains lie. If the revamped scheme fixes the blind spots of the first cycle, the smartphone PLI can still evolve from a success in exports into a success in industrial strategy.