India’s newly notified ‘Mobile Phone Manufacturing Scheme (MPMS)‘ is designed to push the country up the value chain in smartphone making, but a fresh brokerage report says the biggest winners will be those who sell heavily abroad.
According to Kotak Institutional Equities, exports are likely to be the key driver for mobile brands that want to consistently beat the scheme’s growth benchmark and maximise incentives, because India’s domestic smartphone market has seen only limited volume growth in recent years.
MPMS is the Centre’s Rs 62,500-crore, five-year incentive programme to make India a larger and more self-reliant global smartphone manufacturing hub. Effective from April 1, 2026, it rewards eligible phone makers and electronics manufacturing services firms for expanding production and sales, while encouraging higher domestic value addition through local sourcing of components.
The scheme has one track for large manufacturers and another with stronger support for Indian-owned brands that hold local IP, undertake design and R&D in India, and build domestic capabilities—aiming to move the sector beyond final assembly towards Indian supply chains, technology and jobs.
Why domestic sales alone may not be enough for MPMS
The MPMS, notified last week by the Ministry of Electronics and Information Technology (MeitY) has two main tracks. Under Target Segment 1, which is aimed at large manufacturers and contract makers, brands must grow sales by more than 15 per cent annually over a moving baseline to generate sales that are eligible for incentives. Kotak report points out that this 15 per cent hurdle could be tough to clear using only the Indian market.
“MPMS introduces a 15% moving baseline, under which brands must grow sales above ~15% annually to generate eligible sales and qualify for incentives. Given that the Indian smartphone market delivered only ~1.8% volume CAGR and ~14% value CAGR during CY2022‑25, driven largely by premiumisation rather than unit growth, sustaining growth above the scheme hurdle through domestic demand alone may become increasingly difficult,” the Kotak report noted.
As per the data, these days Indians are buying slightly more expensive phones, but not many more phones in total. That makes it hard for companies to keep posting 15 per cent‑plus annual sales growth just by selling inside India.
Exports: The growth engine behind India’s mobile production boom
While domestic volumes have been flat, India’s mobile phone production has been surging, largely because of exports. Kotak highlights that mobile phone production in India has grown at approximately 24 per cent CAGR over 2021‑26, primarily driven by rapid export expansion. This is the same trend seen in recent years, where factories in states like Tamil Nadu and Karnataka have become major hubs for exporting smartphones, including iPhones and Android devices.
“We, therefore, believe exports will be the key lever for brands to consistently exceed the TS1 baseline and maximise incentive payouts under MPMS, making the scheme structurally more favorable for export‑oriented brands and their EMS partners,” the report stated.
For companies like large electronics manufacturing services (EMS) firms and global brands with Indian factories, this means the path to bigger incentives runs through overseas markets, not just local showrooms.
How MPMS is structured: 2 target segments
The scheme is built around two target segments, each with different goals and eligibility rules.
Target Segment 1 (TS1): Scale and localisation for big players
TS1 is focused on scaling up manufacturing and increasing Domestic Value Addition (DVA). It is open to mobile phone manufacturers, including EMS companies, that are registered in India and had a minimum turnover of Rs 10,000 crore in 2025‑26.
Existing brands must meet an annual threshold of Rs 5,000 crore every year over and above their 2025‑26 sales to keep generating eligible sales.
New brands become eligible only after achieving total annual sales of Rs 10,000 crore in India, and must thereafter meet the year‑on‑year threshold sales requirement of Rs 5,000 crore.
Because of the 15 per cent moving baseline, companies in TS1 need to keep expanding their sales base every year. Kotak report argues that with domestic volume growth so modest, exports become the most practical way to stay above this hurdle and earn higher incentives.
Target Segment 2 (TS2): A friendlier track for Indian brands
TS2 is designed specifically for Indian companies and is “financially more generous and structurally easier on annual sales thresholds”, though it comes with strict conditions on ownership and Research & Development.
Eligibility under TS2 extends to mobile phone manufacturers, including EMS companies, registered in India with a minimum turnover of Rs 1,000 crore in 2025‑26, and satisfying all criteria of an “Indian Brand”:
- Registered/incorporated in India
- IP and trademark held within India
- Management control held by Indian citizens
- More than 51 per cent shareholding held by Indian citizens
- In‑house R&D and design capabilities in India
“TS2 is financially more generous and structurally easier on annual sales thresholds, although strict Indian ownership and R&D conditions remain the key criteria,” Kotak noted.
This segment aims to nurture home‑grown brands that design and develop phones in India, rather than just assembling foreign designs.
What the government wants: Scale, value addition and tech sovereignty
The MPMS has a clear set of objectives beyond just making more phones. The scheme aims to make India a stronger global hub for mobile phone manufacturing by increasing production, expanding the domestic supply chain and raising local value addition.
It also seeks to strengthen local capabilities, help Indian brands gain greater control over technology, retain more economic value within the country, promote patents and R&D, and create more jobs.
By linking incentives to growth and local content, the government wants to move India from being mainly an assembly hub to a place where significant design, engineering and high‑value components are made domestically.
Who stands to benefit most under the new rules
Given the structure of TS1 and the reality of India’s smartphone market, Kotak believes the scheme is structurally more favorable for export‑oriented brands and their EMS partners. Large contract manufacturers that already serve global clients and ship significant volumes overseas are better placed to cross the 15 per cent growth bar and claim bigger incentive payouts.
At the same time, Indian‑owned brands that can meet the TS2 criteria—especially those with in‑house design and R&D—could find a easier path to benefits, due to lower turnover thresholds and additional support for domestic innovation.