India is accelerating its drive to become a global electronics powerhouse by offering more than $13 billion (€11.4 billion) in financial incentives to accelerate local chip production, seeking to capitalize on a worldwide scramble for resilient supply chains.

Currently, Taiwan manufactures over 90% of the globe’s most advanced semiconductor chips. Because these components are essential for everything from military systems and aircraft to electric vehicles (EVs) and smartphones, any disruption to the island—which sits at the center of ongoing US-China rivalry—would send shockwaves through the global economy.

The world’s deep reliance on a handful of East Asian manufacturers was laid bare during the COVID-19 pandemic when chip shortages forced automakers to halt production. In response, the EU, the US, Japan, and South Korea have all rolled out multi-billion-dollar programs to attract chipmakers. India is now making its biggest push yet to join that global network.

Last week, the Indian government approved a $13.2 billion (€11.4 billion) semiconductor program labeled Semicon 2.0. The initiative builds on the $9 billion India Semiconductor Mission (ISM) launched in 2021. It aims to cultivate an entire domestic chip ecosystem, encompassing chip design, fabrication, advanced packaging, equipment manufacturing, specialty materials, and workforce training.

India already boasts a massive footprint in the design sector. Thousands of engineers at research centers in the Indian cities of Noida, Hyderabad, and Bengaluru currently design some of the world’s most sophisticated chips for tech giants like AMD, Nvidia, Qualcomm, and Texas Instruments.

However, analysts warn that India is lagging behind in large-scale manufacturing—the segment of the industry that brings both strategic importance and immense economic value.

“India already has the expertise to design sophisticated semiconductor chips,” said V Kamakoti, director of the Indian Institute of Technology in the city of Madras.

“Indian engineers working for both domestic companies and multinational firms have successfully designed and delivered complex chips,” Kamakoti told DW. “The bigger challenge is manufacturing them.”

To date, India’s progress has largely been concentrated in testing and chip packaging, with US giant Micron Technology establishing a semiconductor assembly and test facility in the country. Kamakoti emphasized that the next critical step is building a domestic fabrication ecosystem that can transform existing design strengths into large-scale production.

Under the first phase of India’s semiconductor program, Micron Technology—a US memory chip maker—and two Indian semiconductor assembly and packaging companies, CG Semi and Kaynes Semicon, have begun commercial production.

Ashwini Vaishnaw, the Indian Minister for Electronics and Information Technology, says the next phase is intended to move more of the semiconductor value chain into India.

“Convincing global companies is no longer that difficult,” said ISM chief executive Amitesh Kumar Sinha, noting that out of 12 approved fabrication and packaging projects, three are already in commercial production.

By 2030, the government wants to establish a domestic semiconductor market worth between $100 billion and $110 billion. The ultimate goal is to meet up to three-quarters of India’s electronics demand using locally manufactured and designed chips.

Achieving this industrial leap is exceptionally costly and difficult. A leading-edge fabrication plant can cost more than $20 billion and demands uninterrupted electricity, vast quantities of ultra-pure water, and an extensive network of suppliers providing precision equipment, silicon wafers, and specialized chemicals.

Rather than immediately attempting to build the highly advanced 3 nm processors used in AI systems and high-end smartphones, Kamakoti argues India should first prove it can reliably mass-produce mature 28-nanometer (28 nm) chips.

“28 nm [chips] will meet the majority of India’s needs. Once that succeeds, we can gradually move to more advanced technologies,” he said.

India’s ambitions are benefiting from broader geopolitical tensions and the AI boom, which are pushing tech firms to rethink their supply chains as semiconductor demand is expected to rise sharply over the coming decade.

Sambit Sahu, a semiconductor industry veteran with more than three decades of experience at Intel and Qualcomm, stressed that India must build capabilities across the entire semiconductor value chain, from intellectual property and chip design to manufacturing and fabrication.

“The rapid growth of artificial intelligence will drive demand for semiconductors for years to come, creating a window of opportunity for India,” Sahu told DW.

“Building a semiconductor manufacturing ecosystem will be expensive and technically challenging, but with sustained investment and supportive policies, India could emerge as an important manufacturing hub over the next decade.”

Still, not everyone is convinced India can quickly bridge the manufacturing gap. An anonymous senior semiconductor industry executive predicted that India is likely to remain stronger in chip design than fabrication for the foreseeable future.

“India has built world-class capabilities in chip design, but manufacturing is a different challenge,” he said. “The biggest opportunities in the near term are in packaging, testing and mature-node manufacturing.”

Semicon 2.0 stands as India’s most ambitious attempt yet to compete in the semiconductor race. Ultimately, its success will depend less on the billions India has pledged and more on the nation’s ability to turn those commitments into competitive manufacturing ecosystems, skilled workers, and operational factories.