"Smartphones are becoming the main camera of choice by a large number of people and increasingly more consumers are relying on their smartphones instead of compact digital cameras for both still photos and video capture," Assocham said in its study titled "Digital camera vs. smart phones".
The chamber added the most affected are the sub-Rs. 10,000 compact cameras, which constituted over 85 percent sales in the last five years.
"Sales growth of digital cameras with heavy discounts has significantly declined by 20-25 percent in the last one year whereas the demand of smartphones has increased by over 150 percent," Assocham said.
In a bid to revive sales, the three major camera brands Sony, Canon and Nikon are resorting to price cuts, high visibility advertising and deep distribution reach to grow their market share.
"Digital camera sale has suddenly come down due to large numbers of brands of smartphones at affordable price with multiple buying options. Soaring popularity of smartphones is crushing demand for digital compact cameras amongst the young," Assocham Secretary General DS Rawat said.
He added the compact camera market is going to keep shrinking in the coming years.
The study said a growing number of consumers are finding it much easier to use their smartphones to capture and share images, as compared to using their dedicated digital cameras for the same purpose.
"Smartphones need fewer steps to share the images with others, thanks to built in Internet access and applications designed to interface with social media and photo sharing sites," it said.
The chamber said it is estimated that digital camera sales in unit terms for the first half of 2013 would stand at almost 50 percent of the same period last year, even though they carry huge discounts.