The winds of change hit mobile gadgets hard

India’s once-booming smartphone market has lost its spark. As reported by market research firm Counterpoint, after reaching a peak with 169 million units shipped in 2021, the sector slipped into a prolonged slump, with a steep 9% decline to 152 million units in 2022 and flat growth in 2023. While experts project modest, single-digit growth in 2024, the demand downturn shows little sign of reversal, casting a shadow over India’s smartphone market as it heads into 2025.

The same trend is evident in the smartwatch segment, too. Reports from market research firm International Data Corporation (IDC) India over the past two years have underscored a sharp decline in demand. While the first half of 2023 saw smartwatch shipments grow 2.3 times, reaching 23.2 million units, the first six months of 2024 tell a different story. Shipments to retailers have plummeted by a notable 18.5% as demand for smartwatches continues to slump.

“The entry-premium segment can expect to see healthy growth, while the entry-level will remain challenged despite efforts to launch affordable 5G smartphones.”- NAVKENDAR SINGH, Associate Vice President, Devices Research, IDC India

These trends are not isolated. Over the past three years, India’s mobile-first consumer electronics market—the second-largest globally, only after China—has faced a prolonged downturn in organic consumer demand. This shift leaves brands grappling with key challenges as they seek ways to navigate the market slump and reinvigorate consumer spending. Yet, even as India’s gadget economy remains firmly mobile-driven, finding effective solutions is proving complex.

THE KEY PROBLEM

Currently, India is estimated to have around 950 million mobile phone users, of which 700 million are active smartphone users. This leaves us with around 250 million feature phone users, while roughly 500 million people still live without any mobile phone connectivity.

This is both good and bad for India. On the one hand, this leaves us with a potential base of nearly

750 million people who can be addressed by smartphone brands immediately. However, this is only theoretical—on the other hand, India’s 250 million feature phone users have remained stagnant for a long time owing to economic constraints. Even as India continues to push its digitisation drive across all regions, nearly a quarter of all phone users in India are below income levels that would allow them to spend on mobile data.

The rest, meanwhile, live beyond means that allow them basic mobile telephony and connectivity.

This, in turn, leaves brands with a key problem at hand—with nearly half of all people and a quarter of all telecom subscribers refusing to upgrade to smartphones, the mobile gadgets economy is not finding enough room for organic new consumers. This is a far cry from a decade ago, when the cusp of India’s 4G rollout, coupled with the availability of ultra-low-cost mobile data thanks to Reliance Jio, led to a boom in smartphone sales unlike anywhere else in the world.

“Consumers are not warming up to buy a new smartwatch or replace an existing one due to low differentiation in features and limited innovation in the market.”- ANSHIKA JAIN, Senior Research Analyst, Counterpoint India

Now, however, organic demand has dwindled. Today, India’s mobile hardware market is primarily sustained by returning buyers rather than first-time purchasers. This shift poses a more significant challenge—whereas, a decade ago, consumers were buying smartphones out of necessity, today’s purchases are largely discretionary. As phone upgrades become a matter of choice rather than need, brands find it increasingly difficult to drive sales based on pricing differences alone.

The biggest impact of this was seen on China-headquartered electronics brand Xiaomi. While the latter was India’s number one smartphone brand by a significant margin for 20 straight quarters, the shifting tides of the market led to Xiaomi losing its spot by December 2022.

Last year, Xiaomi spent time reshuffling its device lineup and re-strategising how to return to a market where the only remaining demand was for premium smartphones. While this is making an incremental impact on the company, there is still a long way to go. This highlights the biggest problem for India’s electronics retail industry—the factors of demand have waned.

THE MARKET IMPACT

With such shifting dynamics, India’s once-robust electronics economy is currently under stress. The slowdowns have changed how the market works, and as a result, retailers have also had to adjust to keep their businesses alive throughout the year.

A veteran multi-brand electronics retailer in Mumbai, who requested anonymity citing contracts with various brands, said, “Earlier, brands used to give us wider margins subject to sales targets being met. This allowed us to ramp up deals and discounts during the festive season and effectively rival online stores like Amazon and Flipkart. But that’s not the case today—and on top of brands like Samsung and Vivo reducing retailer margins, the general interest and demand have also declined. This is making us offer discounts we used to offer in festive seasons throughout the year instead.”

The retailer’s assessment is on track with his colleagues. A senior industry executive who runs a multi-brand national electronics and appliances chain added that consumer patterns have completely altered. “With no-cost EMIs available all year, most buyers nowadays walk in and buy a device at their convenience instead of putting their purchases off until the festive season. Buyers are also mostly returning customers who at least have a smartphone and now wish to climb up the value chain with a more premium smartphone—as a result, their purchases already have a lesser novelty factor,” the executive added.

Explaining how the market will be impacted in the future, Navkendar Singh, Associate Vice President of devices research at IDC India, said, “The premiumisation trend in the smartphone market led by Apple and Samsung, coupled with rising device costs, is motivating China-based brands to expand beyond the mass segment. The entry-premium segment within USD 400 (Rs 33,500) is expected to see healthy growth. In contrast, the entry-level segment of sub-USD 100 (Rs 8,500) will remain challenged at least this year, despite efforts around launching affordable 5G smartphones. The marketing around generative AI smartphones will be more pronounced too, amid heavy promotional activities around it.”

Elaborating upon smartwatches further, Anshika Jain, Senior Research Analyst at Counterpoint India, said, “Consumers are not warming up to buy a new smartwatch or replace an existing one due to low differentiation in terms of features, and limited innovation in the market—leading to a decline in sales.”

Therefore, the factors show that India’s mobile electronics markets are on an upward value curve. However, the volumes could take a hit in the meantime, leading to market slumps in the future. After nearly a decade of sustained growth, the market appears to have run out of steam to accommodate consecutive years of exponential growth, and most analysts expect that it will only be a matter of time before even the premium smartphones hit a ceiling.

Thus, the focus could soon shift from India as a consumption hub to a manufacturing and innovation hub, which could bring India closer to China and make it a global technology hub for hardware development.

By Varnika Awal

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