India's smartphone and chip ambitions on track amid tariffs uncertainties

The Hindu

3 days ago

The announcement of a 50% tariff on exports to the U.S. from India has triggered concerns across the tech industry. On paper, it sounds like a direct threat to India's growing role in smartphone assembly and its emerging semiconductor ambitions, but in reality, the near-term impact is much smaller than headlines suggest. The structure of electronics manufacturing, the nature of global supply chains and India's unique position in this sector mean that the country's growth trajectory remains largely intact — at least for now.
'The imposition of 50% tariffs structure on India will have distinct impact across electronics exports from India to US, including smartphones, and other electronics assembled in India. In particular, the net impact will be governed by the proposed Trump's 100% tariff on inbound semiconductors supply chain,' said Dr. Danish Faruqui, the CEO of Fab Economics, a U.S. based boutique semiconductor Fab/OSAT Greenfield projects implementation and investment advisory firm.
US President Donald Trump's April 5 executive order excludes smartphones, tablets, laptops, servers and telecom equipment from reciprocal tariffs. Therefore smartphone exports to the U.S. from countries like India, China and Vietnam are insulated from reciprocal tariffs. This includes the current 50% tariff on India.
'The only constant with the U.S. tariffs has been the change of status quo dynamically over the last 4-5 months, therefore such reprieve from US tariffs on smartphone is not a guaranteed insulation,' Dr. Faruqui said.
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'This [tariff] is more of a negotiation tactic putting pressure to achieve leverage in overall trade negotiations which would be on completely different items,' said Prachir Singh, Senior Research Analyst at Counterpoint.
Manufacturing math
It is important to note that setting up electronics manufacturing and supply chain ecosystem is a complex and tedious process that involves huge capital investments. It requires multiple layers of suppliers like chip fabrication units, printed circuit board assembly lines, camera modules makers, display panels manufacturers, batteries makers, connectors, packaging firms, testing experts and logistics handlers. And setting this up takes decades to mature. Once they are in place, they cannot be dismantled and rebuilt in another country.
'Electronics supply chain and manufacturing is inherently complex and takes decades to be built. It is nearly impractical to pressure OEMs and supply chain to setup operations in USA,' Prachir added.
Moving manufacturing in response to tariffs is unrealistic. For a company like Apple, which relies on precision ecosystem, moving production to a different place would mean years of planning and billions of fresh investment.
In the meantime, Apple faces some pressure due to tariff imposition by the U.S. on India. 'Apple could absorb some of the extra cost, at least temporarily. However, a 35 to 40% jump in the retail price of an iPhone in the U.S. is not something either Apple or the U.S. government would want or accept as normal,' said Prachir. iPhones are already premium products and a sudden price spike could hurt sales volumes and consumer sentiment.
As per Fab Economics, Global smartphone industry is not reacting well to tariff impositions resulting in demand softening in multiple world regions including US. iPhone shipments to the U.S. declined by 11% year-on-year to 13.3 million units in Q2'2025 wherein Apple reported $800 million in tariffs and forecasted $1 billion in tariff in Q3'2025.
Most of the iPhones assembled in India and exported to the U.S. are currently exempted from the 50% tariffs (25% for now). There will be no immediate disruption to India's iPhone production lines or to Apple's export plans from the country.
India's position
Even with the uncertainty around tariffs, India remains ahead of several competing manufacturing hubs. 'Compared to Vietnam, India has a far larger domestic consumer base, which means production is not entirely dependent on exports. Compared to China, India offers geopolitical diversification for global brands seeking to reduce their reliance on one country,' explained Prachir.
Factors like strong export potential with schemes like production linked incentive (PLI) and huge internal demand due to a large young population, make India a rare market. This makes India a strategic choice for electronics manufacturing in the long term.
The latest tariffs move looks less like an attempt to dismantle existing manufacturing patterns and more like a negotiation tactic before an upcoming trade deal between India and the U.S. For India, this 50% tariff is more of a background noise than an immediate operational challenge. As long as major export items like iPhones remain exempt, the impact will be muted.
'India's smartphone exports to US to remain tariff free by the virtue of proposed Trump's 100% tariff imposition plan on semiconductors that plan to exempt or provide favourable rates to companies having US manufacturing operations or having committed roadmap for US manufacturing operations: both Apple and Samsung qualify for such preferential treatment which represent over 80% of India's smartphone exports to US,' said Dr. Faruqui.
India itself is a huge market. If the tariffs pose a challenge, the local demand can act as buffer.
India's smartphone user base continues to expand with nearly 900 million smartphone users. Affordable 5G plans and cheap AI devices areexpected to drive this growth even further. For makers, serving India alongside exports creates a more balanced portfolio. This is something smaller manufacturing hubs like Vietnam lacks.
Impact on other players
While Apple's position is relatively secure for now, other manufacturers could feel less confident. Samsung recently spoke about making India a key global export hub for its devices. If the tariffs environment remains unpredictable, such expansion plans might be slowed down.
'There is a need to have long term clarity as it could create doubts in the minds of other phone makers like Samsung who recently said they wanted to make a key exports hub,' said Faisal Kawoosa, Chief Analyst, Techarc.
Similarly, emerging smartphone brands or component suppliers considering India as a base may hesitate until they see consistent policy signals from both the U.S. and India. In manufacturing, investment timelines often stretch over a decade or more. Companies prefer to commit where they can reasonably forecast market access and costs.
Even if the tariffs impact is limited, the uncertainty it creates can shake the supply chain. With trade rules changing without warning, suppliers may face challenges in planning, sourcing raw materials and deciding the pricing for the end buyers. Electronics sector, which is running on wafer-thin margins and demand is highly price-sensitive, such unpredictable move can disrupt the market.
'Such commotion stresses supply chain which makes pricing unpredictable,' added Faisal.
Semiconductor
India is also taking huge strides in semiconductor manufacturing by building chip fabrication facilities that are more complex than smartphone assembling units. It involves huge capital expenditure, sanitised manufacturing environments and extremely precise logistics for raw materials like silicon wafers, rare gases, and photolithography equipment.
India has made investment to attract semiconductor makers, but these projects could take years to become operational. For global players considering where to place their next fabs or advanced packaging units, policy stability is just as important as infrastructure. Frequent shifts in trade dynamics could complicate those decisions, even if they do not stop them outright.
'Due to Trump's administration semiconductor tariffs enactment there will be distinct tailwinds for players in the U.S. allied countries, including beneficiaries of the U.S. Chips Act who are pursuing manufacturing operations on the U.S. soil, while major headwinds for non-allied or adversarial countries,' said Fab Economics.
Manufacturers will continue to invest in India as long as they believe that the rules of the game will not shift unpredictably. This stability must come from both domestic policy and international trade relationships.
Conclusion
Despite the 50% tariffs, India's smartphone and semiconductor ambitions remain largely on track, thanks to exemptions for key electronics export items, a resilient and growing domestic market and a strong competitive position against rivals in Asia.
'India, even with these flip flop on tariffs, is still in the best position against China or Vietnam as a go to destination for manufacturing ecosystem for electronics and eventually semiconductors from both export and huge domestic consumption perspective. It will eventually be a two horse race: India and China,' said Prachir.
The risk does not lie on the current tariffs, but the uncertainty it represents. Stable or predictable policies, both domestically and internationally, will be critical to keep investment flowing and supply chains resilient. India has the opportunity to cement its status as one of the world's top electronics manufacturing destinations. The challenge will be to ensure that short-term trade talks do not distract from that long-term goal.
'India currently holds largest share of smartphone supply to the U.S., inching towards half of its smartphone supply, which makes any tariffs imposition on Indian origin smartphone inbound supply chains directly resulting in price expulsion impacting end users in the U.S., an unwanted outcome for Trump administration,' believes Fab Economics.