India needs China to export smartphones! And this Varsity explainer breaks down why India’s export ambitions are under threat today. Act 1: Government changes the narrative In 2018, India realised it had a massive problem. We were importing mobile phones by the truckloads — worth $3.6 billion – because we hardly had any in-house manufacturing. So the government decided to do something about it. They first massively increased taxes (read tariffs) on importing whole mobile phone units. This made imports expensive. And simultaneously, they introduced financial incentives. They told companies, “Hey, if you make phones in India and export them for sale, we’ll give you money for your efforts.” It was a Production-Linked Incentive (PLI) scheme. It was meant to change India’s fortunes in manufacturing. Act 2: Incentives drive behaviour Everyone loves a good deal that will save them money. And companies are no different. If you give them a good deal, they will come. And they did. Take Apple, for instance. In 2020, virtually all iPhones were made in China. But today, 1 in 5 iPhones are made in India. That’s because its contract manufacturer Foxconn (from Taiwan) saw value in the PLI deal and set up shop in India. In fact, Foxconn earned around Rs 2,450 crores in PLI subsidies in FY24 alone. Foxconn wasn’t the only one. The Tata Group jumped into the fray. And listed contract manufacturer Dixon Technologies reaped massive benefits too. As a result, India’s mobile phone exports zoomed 80 times. From just $300 million in FY18 to exporting phones worth over $24 billion in FY25. Act 3: China retaliates. Quietly. China saw India’s explosive growth over the last few years, and maybe they realized that we are a threat to their manufacturing monopoly. So they found a flaw in our plan. You see, we don’t ‘manufacture’ all the parts in the value chain. We import a lot of the components used to make the phone. It’s the ‘assembly’ of the phone that’s our forte. In fact, out of $7.15 billion worth of smartphone components that were imported in FY25, over half of that came from China. It’s not just that. We even need technical knowhow for manufacturing from China. We don’t have enough skilled engineers. So guess what China is doing to put the squeeze on us?! In the past 6 months, they have called back over 100 Chinese leaders. They don't want India to get the tech knowledge needed to scale things up. They’re also restricting movement of the machinery needed for manufacturing phones. And all this is happening secretly. The Chinese government has not issued any formal notification, nothing. They’re just pressuring companies like Foxconn to abide by their instructions. It’s economic warfare, and China is hoping that this will choke India’s supply chains and hurt our booming mobile phone export business. Final Act So, will India find a way around this? We’ll keep our fingers crossed for that.