Government asks local handset companies to make sub-Rs 2K smartphones

Govt wants handset makers to supply 20-25 million low-cost handsets in the market to take digital transactions to masses.
NEW DELHI: The government has sounded out local handset makers to come up with smartphones costing less than Rs 2,000 that can enable financial transactions, as it realizes its push for a less cash economy won’t succeed until affordable devices are made available to the rural areas.

In a meeting held recently by Niti Aayog, the government has asked home-bred handset makers including Micromax, Intex, Lava and Karbonn to build low-cost phones that can take digital transactions to the masses, three people aware of the discussions said. Chinese players haven’t been approached for this project while larger multinationals such as Samsung and Apple didn’t attend.

"The government has begun enabling digital transactions, which are growing exponentially now, but they realize that there aren't that many low-cost smartphones in the market," one of the three senior industry executives aware of the meeting told ET, asking not to be named.

Two of them said the government is pushing handset companies to pump in 20-25 million handsets into the market, but has ruled out government subsidy. Instead, it is asking companies to come up with solutions to bring down the cost of the phone, which has capabilities to allow financial transactions.

"The government’s aim is to allow financial transactions from anywhere, devices which should also have the ability of scanning for Aadhaar-based financial transactions in the future," the second industry executive said.

Industry insiders though said key challenges will have to be addressed first for the project to get off the ground. Foremost, keeping the cost of the phone low while adding features like finger print scanner, high-quality processors and ensuring adequate build quality.

At present, 3G smartphones are available at starting prices of around Rs 2,500, while first 4G phones start at higher prices. Affordability and use cases are two big factors behind feature phone users being averse to switching to smartphones in the rural areas.

Only around 300 million of India’s about a billion mobile phone users have smartphones. Also, rural areas have a teledensity of just above 50%, compared with over 200% in cities like Delhi, underlining the disparity in mobile phone usage.

Another challenge is the sheer volumes of the phones planned to be sold, which is as high as the combined quarterly smartphone shipments for the industry. Not only will the volumes require large investments, it will also mean an advance inventory pile up instead of demand-based production.

Apple, Samsung, Micromax, Intex, Lava and Karbonn did not respond to queries as of press time Sunday.

The government has set the agenda for pushing cashless transactions after it demonetised old Rs 500 and Rs 1,000 notes in November.

Mobile payment systems will be key to this digital shift, which is why the government has launched the Bharat Interface for Money (BHIM) app, a platform that connects 31 major banks using UPI. The app has been downloaded more than 1 million times.

But since the app and other UPI-based payments require smartphones, with a data connection, the reach of the government’s cashless nation plan will remain limited unless more people have phones that are data-enabled.

In the months following demonetisation, the volume and value of payments made through digital modes, including Unstructured Supplementary Service Data (USSD) for mobile communications, Unified Payment Interface (UPI) and e-wallets, has risen significantly.

According to RBI data, UPI transactions rose 582% by volume month-on-month to 2 million in December, while by value the rise was 686% to Rs 711.4 crore. USSD transactions were up more than 10 times by both value and volume, but on a low base. Overall electronic payments, including banking transactions, rose 40% to 939 million, and 10% to over Rs 10 lakh crore.

Mobile banking transactions grew 175% while money transacted using mobile banking grew 369% in October year-on-year, according to an IndiaSpend analysis of RBI data.



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