India, the world’s second-most populous country, is on track to overtake China as the world’s biggest smartphone market next year—and the country’s vast young, connected population continues to buy new phones every day.

According to estimates from research firm IDC, Indian smartphone sales will climb 45.7 percent in the first three quarters of 2019, compared to the same period last year. The country is also on track to be the No. 2 market worldwide for smartphones, trailing only China.

As recently as 2012, Apple was able to maintain only a single store in India. But in recent years, the company has managed to open 33 stores across the country, compared to almost 300 stores in China.

But while sales have helped the iPhone maker gain ground in India, the company’s large local presence has posed a challenge for the Indian government.

India’s ruling Bharatiya Janata Party (BJP) has proposed legislating mobile phone data usage into local data charges as a measure to drive the local data ecosystem and close the country’s growing digital divide.

Research firm CB Insights says that 2017 in India, Amazon owned the online shopping market and eBay had one-third of the offline market. Those milestones indicate the ground made by Amazon’s aggressive phone strategy in India.

"Amazon’s smartphone is something of a Trojan horse," says Jimmy Gupta, a technology consultant for Impact Strategy Consulting. The company has played a major role in pushing smartphone prices lower by offering simple operating systems that work on cheap data plans.

However, besides being a major beneficiary of India’s new infrastructure spending, the online retailer had to deal with the government’s ruling that data usage required local data roaming, which in turn put a hold on Prime Minister Modi’s ambitious mobile initiatives.

Gone were plans to deploy 10 million high-speed, high-speed mobile internet hotspots across India for rural farmers. The government later threw out its proposal to give special telecom licenses to companies that offered free data services.

Now, two mobile operators-- Reliance Jio Infocomm and Vodafone India--as well as operator Bharti Airtel have agreed to pay $1.2 billion to the government to pay for voice and data over the next five years.

Airtel will also provide the government with access to its 5G network next year for free. The company expects that the government will charge it a fee for the service but it won’t reveal the details of that fee.

Government offers an incentive

The government is also offering incentives to companies whose technologies serve the country’s telecom and “digital” needs.

“Airtel, as a single licensee, will have to spend ₹36,000 crore (approximately $5.2 billion) for the next five years for upgrades. And they need to pay ₹12,000 crore as licence fee annually,” added Gupta.

The agreement between the two companies aims to connect 6,000 gram panchayats (village government committees) across India. Airtel had previously said that the project may cost it as much as ₹14,000 crore.

Investment and competitive pressures

Last week, Bharti Airtel decided to exit the cellular services business altogether, citing stiff competition and regulatory pressure.

That shift comes after the government last year ruled that Airtel and Vodafone need to sell their shares in unlisted telecom operator Loop Telecom in order to obtain special telecom licenses. The ruling forces the two operators to sell the shares and the government will use them to ensure pricing competition in the telecom market.

Bharti Airtel also last year declared that it will focus on the company’s digital business by building data centers, building 5G networks, and expanding its internet of things (IoT) offerings to India.