#162 Decoding EU Chips Act 2.0
In this edition of Technopolitik, Anwesha Sen analyses the EU Chips Act 2.0 and implications and opportunities for India.
Earlier this month, the EU published a proposal for the Chips Act 2.0, intending to repeal and replace the original 2023 legislation, and significantly expand the scope of EU intervention across the semiconductor value chain. The Commission frames the Act in explicitly strategic terms, positioning it as Europe’s solution to supply chain fragility, over-dependence on non-EU suppliers, and the weaponisation of semiconductor access as a geopolitical tool. While the text states that Europe’s tech sovereignty remains “grounded in openness, partnership and fair competition,” it simultaneously introduces mechanisms that structurally privilege EU-based players and create tiered access regimes for foreign companies.
To achieve sovereignty, the Act relies heavily on the concept of “EU added value.” This metric essentially grants preferential treatment, public funding, and fast-tracked permits only to companies that can prove their operations heavily benefit the EU through local job creation, domestic R&D, and supply chain localisation.
Beyond subsidising local supply, the Act systematically drives demand toward European players through three core mechanisms:
Public Procurement Restrictions - European contracting authorities in critical sectors can now demand exhaustive supply chain declarations from bidders. While the Act acknowledges international free trade agreements, it includes broad security carve-outs allowing authorities to exclude non-EU suppliers entirely.
Grand Challenges - This mechanism funnels R&D funding strictly toward Commission-defined technological priorities (such as AI and energy-efficient processors) giving selected domestic consortia a state-backed head start.
Demand Forum and Accelerators - These platforms coordinate early purchasing signals between European chip manufacturers and key downstream sectors like the automotive and defense industries, pre-empting the market before foreign competitors can bid.
These protectionist mechanisms carry a direct competitiveness cost that the EU acknowledges but understates. Forcing European end-user industries to preference EU-sourced alternatives or to absorb the administrative burden of supply chain declarations and security assessments, adds considerable friction to an industrial base already under pressure.
For foreign companies attempting to navigate this insulated market, the Act establishes a tiered access framework. Position in this hierarchy is determined by two factors: the extent of a company’s “EU added value”, and whether a foreign state holds influence over its strategic decisions.
Full Participants - This tier is open to non-EU-headquartered companies, but it requires genuine localisation rather than a mere sales office. Foreign firms that build local fabs or R&D facilities can meet the “EU value add” criteria, granting them full access to strategic project status and state support.
Strategic Partners - Foreign companies based in nations that hold formal “Strategic Semiconductor Partnerships” with the EU receive favourable status. Entities in these two tiers are permitted to join the Business-to-Business Semiconductor Supply Chain Platform, where trusted companies share aggregated data to forecast risks and are exempt from direct government data requests during the pre-crisis alert phase.
Conditional Access - Foreign suppliers lacking a localised footprint or a bilateral treaty face a disclosure-heavy public procurement process. They are entirely locked out of the supply chain platform, must submit detailed ownership declarations, and remain vulnerable to exclusion at the discretion of local contracting authorities.
Restricted Entities - The Act effectively cuts off meaningful market participation for state-linked or adversarial entities. By scrutinising ownership for decisive influence by foreign states and utilising restrictive IP protection clauses, the framework bars entities that are deemed geopolitical risks.
2026 marks a turning point as India’s first commercial packaging facility entered production in Sanand. However, its capacity remains concentrated in assembly operations and legacy nodes (28nm and above) rather than cutting-edge logic fabs. Additionally, cross-border design collaboration remains bottlenecked by legal friction, as India lacks an EU GDPR adequacy decision. This issue is compounded by a limited EU-recognised R&D presence since much of India’s deep chip design sector is embedded within the global operations of US-headquartered firms rather than autonomous Indian firms with direct EU ties. Hence, India cannot yet satisfy the Act’s “EU added value” criteria.
On strategic partnership, while bilateral cooperation exists under the EU-India Trade and Technology Council (TTC), the two regions have yet to formalise a Strategic Semiconductor Partnership.
The immediate opportunity for India lies in capitalising on its engineering talent and shifting focus toward software and data infrastructure. India controls roughly 20% of the global total of chip design engineers. Since Pillar I of the Act heavily targets research, design, and skills development, Indian engineering service firms and fabless design houses are prime candidates to partner with EU entities.
However, talent alone is not enough to secure institutional access. To secure a seat at the table before the Act solidifies, India must use the TTC to urgently formalise a Strategic Semiconductor Partnership.
Furthermore, as India and the EU share a significant overlap in their identified critical minerals, the TTC provides an ideal vehicle to build joint supply chain resilience. This approach is already in motion. In May 2026, the EU and India launched a ~₹169 Crore joint initiative under TTC Working Group 2, which is explicitly dedicated to developing advanced EV battery recycling technologies. It focuses on recovering strategic minerals like lithium, cobalt, and graphite, directly addressing mutual supply vulnerabilities.
Moving forward, India should expand this momentum within the TTC to pool capital for joint third-country mining acquisitions and to scale up domestic midstream processing. Concurrently, these approaches can position India as a strategic partner in this framework.
#161 Reflections from the "Germany as a Technology Hub" programme
In this edition of Technopolitik, Bharath Reddy talks about his experience and takeaways from his visit to Germany, as part of the Auswärtiges Amt (Federal Foreign Office) Germany’s Visitors Programme.
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