MUMBAI—As radio stations struggle in the West to attract new advertising and remain relevant in the internet age, India is in the middle of a belated radio revolution.

Hundreds of new radio stations are hitting the airwaves in the South Asian nation of 1.3 billion people and attracting a record amount of revenue, thanks to deregulation, small-town consumption and cheap cellphones with built-in FM receivers.

“Suddenly FM stations are being listened to,” said Piyush Pandey, executive chairman for South Asia and India at ad agency Ogilvy & Mather, which now often recommends radio to clients who want to target specific regions or cities.

Radio has existed in India since the early part of the last century, but was largely limited to state programming until the 1990s. While New Delhi has slowly opened radio to more private-sector competition, the industry remains nascent. Its 313 commercial FM radio stations and state broadcaster made $416 million in revenue last year, according to data from PricewaterhouseCoopers LLP—a fraction of the $22 billion brought in last year by over 6,700 FM stations in the U.S., the largest radio market.

Still, radio revenue in India climbed 18% in 2016 from $352 million a year earlier and is expected to continue to grow, according to PwC. In the U.S., Japan and the U.K., revenue has averaged growth of less than 2% over the past four years, while growth in China and Brazil has been below 3%.