India’s ₹1.9T chips-and-phones push: Strong on vision, still finding its footing

The Union Cabinet on Wednesday approved a sweeping new phase of India’s manufacturing strategy, clearing incentive programs worth roughly ₹1.9 trillion for semiconductors and mobile phones, alongside a new investment policy for gas-based urea plants and infrastructure projects in Uttar Pradesh. Taken together, the package marks a deliberate pivot in industrial policy, from paying companies to simply assemble products in India, to paying them to design, engineer and own more of the value chain here.

But beneath the scale of the announcement lie unresolved questions about timelines, job creation, fiscal exposure and whether India’s underlying ecosystem, talent, capital-goods supply chains, and execution capacity, can keep pace with the ambition on paper.

What was approved
At the centre of the package is Semicon 2.0, a ₹1.27 trillion programme intended to help Indian companies design chips, generate patents and build domestic research capability, with a target of ₹4 trillion in cumulative investment by FY31. The Cabinet also cleared the Mobile Phone Manufacturing Scheme (MPMS), a five-year, ₹62,500 crore programme running from FY27 to FY31 that rewards companies for sourcing components domestically and gives Indian-owned brands extra incentives for product design and R&D. It succeeds the Production Linked Incentive Scheme for Large Scale Electronics Manufacturing (PLI-LSEM), which concluded on March 31, 2026.

Semiconductors: From fabs to IP
Union IT Minister Ashwini Vaishnaw said Semicon 2.0 marks a shift from the first phase of the India Semiconductor Mission, under which 12 projects worth more than ₹1.64 trillion were approved, largely for fabrication and packaging facilities, toward building an end-to-end ecosystem with far greater emphasis on chip design and intellectual property. Design incentives will be “significantly larger” than before and, for the first time, open to large private conglomerates, not just startups.

Industry executives welcomed the shift. Ankush Wadhera, India semiconductor lead at Boston Consulting Group, said India’s historical lack of fab and packaging infrastructure has forced startups to prototype designs overseas at high cost and with long wait times; a domestic ecosystem, he said, would let Indian firms “tape-out their designs at significantly lower cost” and capture more value and patents domestically.

Mobiles: Chasing value addition, not just volume
The MPMS offers manufacturers incentives of 2.25–5% on eligible sales, an additional 1.5% for domestic sourcing of key components and sub-assemblies, and a further 3% for Indian-owned brands investing in design and R&D. The government is targeting domestic value addition above 45%, up from about 20% today, along with ₹39 trillion in cumulative mobile phone production and ₹15 trillion in exports by FY31. Detailed guidelines, including how companies will be tiered and how “eligible sales” will be defined, are expected within 15–20 days.

PLI-LSEM, launched in 2020 with a sanctioned outlay of about ₹41,000 crore against an original investment target of ₹7,000 crore, ultimately drew about ₹17,500 crore in investment and helped generate ₹11.6 trillion of mobile phone production. India exported ₹2.6 trillion worth of mobile phones in FY26, and smartphones overtook diesel and polished diamonds in 2025 to become the country’s single largest export category, at roughly $30 billion. The government says 99.2% of mobile phones used in India are now made domestically. Ajai Chowdhry, co-founder of HCL, called the new scheme’s push on component sourcing and R&D “a decisive step” toward correcting years of Indian brands losing ground to Chinese rivals.

Critique: The gap between ambition and delivery
The policy logic behind this package is sound, India has spent five years building assembly capacity and is now trying to climb the value chain into design, components and intellectual property, which is where the durable profits and strategic leverage actually sit. But several aspects of Wednesday’s announcement suggest the government is again betting heavily on outlay and target-setting to substitute for the harder, slower work of building underlying capability.

The clearest warning sign is timing. Vaishnaw himself indicated that commercial production at the Tata Dholera semiconductor plant, a flagship project approved under the first phase of the India Semiconductor Mission, will not begin until the second or third quarter of 2028, roughly six to seven years after that mission was first launched. If a marquee, well-funded project needs that long to reach commercial output, it raises reasonable doubts about whether Semicon 2.0’s FY31 investment target of ₹4 trillion, and the broader ambition of building a design-and-IP ecosystem around it, is realistic on the timeline the government has set. Semiconductor manufacturing is unusually unforgiving of delay: talent has to be trained, supply chains for wafers, specialty gases and packaging materials have to be built largely from scratch, and none of that can be compressed simply by raising the incentive amount.

The decision to open design incentives to “large private conglomerates” cuts both ways. It could mobilise serious balance-sheet capital into chip R&D, as the government intends. But without safeguards, it also risks channelling a disproportionate share of a limited incentive pool toward a handful of large, already well-capitalised business houses, at the expense of the smaller design startups that arguably need public support the most and that Semicon 2.0’s original narrative, indigenous IP and patents, is ostensibly built around.

On mobiles, the numbers tell a more cautious story than the headline figures suggest. The MPMS carries a larger outlay (₹62,500 crore) than PLI-LSEM (₹41,000 crore) but is expected to generate only around 60,000 direct jobs, a marked step down from the employment intensity of the scheme it replaces. That is a deliberate trade-off toward higher-value, more capital-intensive activity, but it also means this scheme will do comparatively little for India’s core economic challenge: absorbing millions of new entrants into the workforce each year. A domestic value-addition target of 45% is also a meaningful improvement over 20%, but it still leaves more than half of a phone’s value, chipsets, displays, memory, and other high-IP components, sourced from abroad, meaning the “Make in India” phone will for years remain substantially a “Made from imported parts, in India” phone. Whether the scheme meaningfully shifts that composition, or simply relocates more sub-assembly work without shifting who owns the core technology, will depend entirely on guidelines the government has not yet published, more than three weeks after the scheme’s approval.

More broadly, a ₹1.9 trillion, multi-year subsidy commitment is being made at a moment when the global conditions that made India’s electronics export story work, sustained “China+1” diversification, resilient global demand for smartphones, and relatively open trade access to the US and EU, are themselves in flux amid tariff uncertainty and shifting supply-chain politics. Export targets such as ₹15 trillion in mobile phone exports by FY31 depend as much on decisions made in Washington and Beijing as on anything India’s Cabinet approves domestically.

Implications
If executed well, the package could meaningfully reposition India in global technology supply chains: less as an assembly hub competing on labour costs, and more as a source of chip design, intellectual property and higher-value components, a shift with real geopolitical weight as Western economies continue to look for alternatives to Chinese-dominated electronics and semiconductor supply chains. Five-year policy visibility, replacing the uncertainty that followed PLI-LSEM’s expiry, should also help investment planning across the electronics manufacturing services industry, benefiting firms like Tata Electronics and Dixon Technologies that build devices for global brands.

The bigger test, however, is one the announcement itself cannot resolve: whether India can convert incentive outlays into an actual innovation ecosystem, trained engineers, functioning design-to-fab pipelines, and globally competitive Indian-owned intellectual property, within the FY31 timeline it has set, given that comparable earlier commitments, including the flagship Dholera fab, are already running years behind their own schedules.

CT Bureau