Indian mobile manufacturers are showing caution toward the government's new Mobile Phone Manufacturing Scheme due to a 20 percent market slump and a steep ₹1,000 crore turnover requirement. While the scheme offers a 5 percent incentive for local brands, the difficulty of meeting volume targets in a weak retail environment is making it challenging for domestic OEMs to participate compared to large contract manufacturers.
The government’s new Mobile Phone Manufacturing Scheme is facing a slow response from domestic smartphone brands. The policy, designed to promote local manufacturing through incentives, offers a 5 percent reward for Indian brands and additional benefits for local research and development. However, many domestic players are finding it difficult to commit to the plan due to a mandatory turnover threshold of ₹1,000 crore for the 2025-26 fiscal year.
This target has become a major hurdle as the broader Indian smartphone market struggles with a 20 percent annual decline in sales. The challenge for domestic manufacturers is that they often operate in the lower price segments, where profit margins are already very thin. To qualify for the scheme's incentives, these companies would need to achieve significant volume growth. In a market where consumer demand is softening, forcing production volume to meet a revenue target can risk increasing inventory piles and straining working capital.
There is a growing gap between large-scale contract manufacturers and home-grown brands. Large contract manufacturers possess the assembly capacity and supply chain infrastructure to handle high volumes, making it easier for them to meet the eligibility criteria of such production-linked schemes. In contrast, smaller domestic brands often struggle with volatile component costs and limited ability to scale production rapidly. This structural difference means that, without policy adjustments, the benefits of the scheme might disproportionately favor large contract assemblers rather than the domestic brands the government aims to support.
While the scheme includes a 1.5 percent incentive for sourcing components locally, which could theoretically help reduce long-term dependency on global supply chains, the immediate cost pressures are difficult to ignore. Many manufacturers are currently analyzing whether the potential fiscal support outweighs the risk of rigid production targets in a declining market. Analysts have indicated that the industry is likely to engage with policymakers to seek a revision of these eligibility criteria by the end of December. The current targets were established during a period of higher global volumes that do not accurately reflect the cooling market conditions of 2026.
For investors and market observers, the key monitorable is whether the government decides to relax the turnover threshold or adjust the incentive structure to better accommodate the current realities of domestic OEMs. Until then, manufacturers face the difficult task of balancing the pursuit of government incentives with the need to maintain financial stability amid a persistent slowdown in consumer electronics spending.