India surpassed the USA to become the second largest global smartphone market in terms of users in early 2016. India has continued to register strong demand for smartphones to connect hundreds of millions of users to the internet. There is a substantial opportunity for every player in the mobile value chain when the second largest market by volume is still under-penetrated and growing at a time when growth in demand for smartphones in much of the rest of the world is waning. To summarize, India can safely be labelled as the next China in this sector.It is estimated that more than a billion smartphones will be sold in India over the next five years. This will drive the number of smartphone users from a quarter of a billion to more than half a billion in the same time. This will still mean that only 55% of the total population will have smartphones. In this five-year period, the close to a billion smartphones, together with almost half a billion feature phones, that will be sold in India, will consume more than US$80 billion worth of components. If these are not sourced or manufactured locally, they will need to be imported.The “Make in India” initiative has been successful at driving some indigenisation of assembly of mobile phones; the number of mobile phone and related components manufacturing facilities are estimated to exceed 50 units by the end of CY2016, up from just two units before the ‘Make in India’ program was announced. We estimate more than 180 million mobile phones, worth some US$9 billion at retail value, will be assembled in India in 2016. This is from a total of 267 million mobile phones worth US$13 billion expected to be sold in India in CY2016. However, of this total, only an estimated US$650 Million worth local value addition will be possible (defined as locally sourced components used by manufacturers for local manufacturing). This means that the overall localization rate will be just under 6% of the total value of US$11 billion worth components going into those 267 million phones in CY2016. China which has built manufacturing ecosystem over more than a decade, has local value addition as high as 70% that satisfies not only domestic demand but also export demand. In some countries, like South Korea and Taiwan, the local value addition is also above the 50% level. In other emerging manufacturing hubs, such as Vietnam has crossed 30% mark and Brazil value addition has already reached sub 20% levels.It is critical for the ‘Make in India’ initiative that it enters the next phase and transforms the manual semi-knocked down (SKD) level assembly and minimal amount of local component sourcing into a large-scale manufacturing ecosystem over the next few years. Currently, most of the components and sub-components are imported and assembled in a semi-knocked-down format. There is hardly any incentive or effort to meaningfully invest in research, design, development, advanced surface mount technology (SMT) led printed circuit-board (PCBA) manufacturing, or attempts to attract key component suppliers to form a robust local manufacturing ecosystem.Our study, conducted jointly by IIMB researchers and Counterpoint Technology Market Research Limited (hereafter referred to as Counterpoint Research), using data collected by Counterpoint Research analyzes the current state of mobile phone manufacturing in India and provides detailed recommendations on the future steps for a phased manufacturing approach. The impact and implications of this approach on the entire mobile phone industry is also further analyzed.A practical phased approach has been proposed to maximise the local value addition by identifying, quantifying and analyzing the possibility of indigenisation of key components and corresponding sub-components that make up a mobile phone. This phased approach will drive the true local value addition to more than 30% by 2020 and potentially to as much as 50% thereafter.