Union Budget 2026-27 included the announcement of the India Semiconductor Mission 2.0 (ISM 2). This is a follow-up to ISM 1, which was launched in December 2021.
An initial provision of Rs 10 billion has been made for ISM 2 in the FY 2026-27 budget. Apart from encouraging industry-led research and the creation of training centres, ISM 2 will focus on producing semiconductor gear, developing and designing full-stack semiconductor intellectual property (IP) and plugging gaps in supply chains.
Semiconductors, commonly known as chips, are the backbone of the electronics that power computers, mobile devices, telecommunications systems, automobiles, aircraft, defence systems, power grids, artificial intelligence (AI) and all sorts of modern appliances.
Semiconductor design has a big impact on telecom infrastructure. A 5G network is built on an integrated stack that includes radio access equipment, base stations, antennas, radio frequency (RF) front-end modules, power amplifiers, filters, transceivers, optical transport and embedded software. Every layer must work together, and chip design is key to ensuring this.
India has already made progress in developing the semiconductor ecosystem under ISM 1, by expanding design capabilities and increasing the capacity for fabrication, assembly and testing infrastructure. Indians have an appreciable presence in semiconductor design, contributing 20 per cent of the global workforce.
ISM 1 had an incentive framework that offered around Rs 760 billion in support. It offered fiscal support of up to 50 per cent for silicon fabs, compound semiconductor facilities, assembly and testing units and chip design. As of December 2025, 10 projects with a total investment of Rs 1.6 trillion have been approved across six states. These include silicon fabrication units, silicon carbide fabs, advanced memory packaging facilities, and assembly and testing infrastructure, with four plants to commence production during 2026.
ISM 2 seeks to build on those gains. One focus area is start-ups that can design a product and take it to market. Another focus area is strengthening the domestic ecosystem across manufacturers, as well as validation and testing resources. ISM 2 also aims to improve the talent pipeline. The Modified Programme for Development of Semiconductor and Display Manufacturing Ecosystem in India has a Rs 80 billion outlay for 2026-27 (see Box for projected outcomes of the programme).
By 2029, India targets to design and manufacture 70-75 per cent of chips that are domestically consumed. ISM2 aims to create the domestic capability for sophisticated 3 nanometre and 2 nanometre chips. By 2035, India hopes to become a global leader in semiconductor technologies.
There are both strategic and fiscal implications of India’s semiconductor policy. The country currently imports 90 per cent of its semiconductor needs. Global supply chain disruptions could cripple India’s digital economy and infrastructure. Semiconductor imports in FY 2025 hit $30.3 billion, up from $19 billion in FY 2023 and $11.9 billion in FY 2019.
Moreover, India’s consumption of semiconductors is expected to more than double from $45 billion-$50 billion in FY 2025 to $100 billion-$110 billion by 2030, which constitutes around 20 per cent of global output. Developing domestic capabilities is an imperative to retain strategic independence, as well as to save on foreign exchange. If India does become a global player by leveraging its IP and building manufacturing capacities to earn foreign exchange, that would be an added bonus.
Consider, for example, the supply crunch that ensued as a consequence of the Covid-19 pandemic and the subsequent Ukraine conflict. The pandemic exposed weaknesses in semiconductor supply chains, with shortages affecting over 169 industries, and tensions in Ukraine also cut off supplies of key raw materials. This revealed the risks of relying on a narrow set of suppliers. The industry is dominated by a few countries, such as Taiwan, South Korea, Japan, China and the US. Taiwan produces over 60 per cent of the world’s semiconductors and nearly 90 per cent of advanced chips. The global supply chain is vulnerable to any shock that affects that one small island. As such, the US, the European Union, Japan and South Korea have all launched initiatives to strengthen their respective domestic chip manufacturing capacities.
The ISM aims to build domestic capacity across design, manufacturing and innovation. This is key to achieving self-sufficiency and technological sovereignty. ISM 1 has helped support early-stage companies. India now has a significant fabless ecosystem as ISM 1 bridged the gap between academic research and industry, enabling the country to become a player in semiconductor design.
ISM 1, along with initiatives like the Electronics Component Manufacturing Scheme, Electronics Manufacturing Clusters (EMC) scheme and production-linked incentives scheme, has helped develop electronic manufacturing capacity, though value addition and IP creation remain limited.
India’s electronics manufacturing industry is valued at around Rs 13 trillion. In FY 2026, exports amounted to approximately Rs 4.24 trillion, with mobiles making the largest contribution. ISM 2 aims to develop more sophisticated manufacturing capabilities higher up the value chain and generate more IP.
Another impressive achievement is that skilling has exceeded expectations. ISM 1 targeted skilling 85,000 semiconductor professionals over a 10-year period. In just four years, more than 67,000 semiconductor professionals have been trained. ISM supports the following schemes:
Semiconductor Fabs Scheme: ISM provides up to 50 per cent financial support for setting up semiconductor wafer fabrication units.
Display Fabs Scheme: Offers up to 50 per cent financial support to establish AMOLED and LCD display fabrication units.
Compound Semiconductors and ATMPOSAT Scheme: Supports compound semiconductor and chip assembly, testing, marking and packaging (ATMP) units with up to 50 per cent capital assistance.
Design-Linked Incentive (DLI) Scheme: The DLI scheme has an outlay of Rs 10 billion to support chip design start-ups and small and medium (SMEs) enterprises through research and development support and incentives of up to Rs 150 million per company.
The associated employment opportunities have brought more state governments on board, with many states drafting respective semiconductor support policies. States such as Andhra Pradesh, Rajasthan, Uttar Pradesh, Odisha and Gujarat are actively fostering the industry’s development.
The Andhra Pradesh model
The Andhra Pradesh Semiconductor and Display Fab Policy (4.0) covers the 2024-29 period. Under the ISM, the state’s first semiconductor project is an outsourced semiconductor assembly and test (OSAT) facility proposed by Advanced System in Package Technologies Private Limited (ASIP Technologies) in Visakhapatnam. The project entails an investment of Rs 24 billion and will be implemented in two phases. It is expected to generate 1,000 jobs. ASIP Technologies will operate under a technology tie-up with South Korea’s APACT Co. Limited. The facility is expected to have an annual capacity of 96 million units.
The Andhra Pradesh government has approved 30 acres of land at Re 1 per acre and has extended incentives under the Andhra Pradesh Semiconductor and Display Fab Policy (4.0) 2024-29, with support capped at 40 per cent of project cost.
Rajasthan’s EMC model
The Electronics Manufacturing Cluster (EMC) developed by the Electronic Industries Association of India (ELCINA) at Bhiwadi, Rajasthan, along with the semiconductor ATMP/OSAT facility of Sahasra Semiconductors Private Limited, is an interesting case study. This cluster has been developed over 50.3 acres with a project cost of Rs 461 million. The centre provided a direct support of Rs 202 million under the EMC scheme.
The cluster was set up by ELCINA Electronics Manufacturing Cluster Private Limited (a special purpose vehicle) – a collaborative initiative of several micro, small and medium enterprises under the banner of ELCINA. It is equipped with world-class infrastructure, including uninterrupted power and water supply, internal roads, centralised administrative facilities, testing and training centres, and a dedicated skill development centre with smart classrooms and laboratories.
The EMC has already attracted planned investments of over Rs 12 billion by 20 companies. These are engaged in activities ranging from semiconductor packaging to manufacturing of electronic components, air conditioners, RF identification (RFID) technologies, electric vehicle parts and industrial electronics.
As of now, 11 companies are operational with cumulative investments of over Rs 9 billion, generating employment for over 2,700 people. The companies include Aisan Fiem Industries, E-Pack Durable, Sahasra Electronics, Varada Green Energy, Duggar Power Products and the Electronics Sector Skill Council of India.
Sahasra Electronics is India’s first SME to start the commercial production of chips. It was developed under the Ministry of Electronics and Information Technology’s (MeitY) scheme for the Promotion of Manufacturing of Electronic Components and Semiconductors, and the 57,000 square feet facility involved an investment of over Rs 1.5 billion.
It packages memory chips for Micro SD and flash storage, along with LED driver integrated circuits (ICs), eSIMs and RFID products. It has an annual packaging capacity of 60 million semiconductor units and plans to scale up to 400-600 million units over the next two to three years. It is currently exporting over 60 per cent of its production to the US, Germany, France, Eastern Europe, China and Nepal. Sahasra is working on generating IP around its own products. It also supports training in semiconductor packaging and high-tech manufacturing.
DHRUV64 and the IP ecosystem
The Chips to Start-up Programme enables access to the latest electronic design automation tools across 397 universities and start-ups. Chip designers from 46 universities have designed and fabricated 56 chips at the Semi-Conductor Laboratory in Mohali.
DHRUV64, a fully indigenous 64-bit microprocessor, was developed by the Centre for Development of Advanced Computing under the Microprocessor Development Programme. DHRUV64 can be deployed across 5G infrastructure, automotive electronics, industrial automation, consumer devices, and internet of things (IoT) devices.
DHRUV64 provides a secure processor platform and thus reduces dependence on imports. It builds on a portfolio of indigenous processors, including SHAKTI, AJIT, VIKRAM and THEJAS, which collectively form the foundations of an Indian processor ecosystem. Developed under the Digital India RISC-V (DIR-V) Programme, these processors leverage open-source RISC-V architecture, eliminating licence costs and enabling collaborations across academia, start-ups and industry.
Other initiatives to develop India’s IP ecosystem include academic programmes under the All India Council for Technical Education, such as a BTech in Electronics Engineering with a focus on VLSI design and diploma programmes in integrated circuit manufacturing.
The Skilled Manpower Advanced Research and Training Lab at the National Institute of Electronics and Information Technology in Calicut is one of the institutions supporting training. Such academic institutions work in tandem with industry. For example, a large-scale training programme in nanofabrication and process engineering is being implemented in partnership with Lam Research. The FutureSkills PRIME Programme is another initiative of MeitY and NASSCOM, which focuses on skilling, reskilling and upskilling, offering online courses designed in collaboration with industry.
DLI scheme
The DLI scheme aims to strengthen design capabilities across six system categories, namely, compute, RF and wireless, networking, power management, sensors and memory. As of January 2026, the programme supports 24 semiconductor design start-ups, and of these, 14 start-ups have attracted Rs 4.3 billion in venture capital funding.
DLI-supported companies are engaged in design across a broad range of areas, including systems-on-chip and application-specific integrated circuits for surveillance, networking and embedded systems, RISC-V-based processors and accelerators, and AI-enabled, low-power chips for IoT and edge applications. Their work covers telecom and wireless chipsets, power management and mixed-signal ICs, and sectors such as automotive, energy, space and defence.
The advanced Electronic Design Automation, the national chip design platform, has enabled access to high-end design tools. Around 67,000 students and 1,000 start-up engineers are using these tools for design and development. In academia, 122 designs have been taped out, with 56 chips fabricated at 180 nm at the Semiconductor Laboratory in Mohali. Start-ups have completed 16 tape-outs, resulting in six chips fabricated at advanced foundry nodes, including 12 nm chips. Academic institutions have filed 75 patents, while start-ups have filed 10 patents.
The DLI Scheme has a target of enabling at least 50 fabless semiconductor companies, underpinning ambitions to become a global design hub.
The TATA-ASML partnership – A game changer
The agreement between Tata Electronics Private Limited (TEPL) and Dutch equipment manufacturer Advanced Semiconductor Materials Lithography (ASML) could be a game changer, pushing India up the manufacturing value chain. This collaboration will set up India’s first front-end semiconductor fabrication plant in Gujarat.
ASML is the sole global supplier of the lithographic tools required to manufacture advanced chips. Its technology will support Tata Electronics’ 300 millimetre semiconductor fabrication plant in Dholera. TEPL will invest $11 billion and aims to produce chips for applications ranging from automotive and mobile devices to AI.
India’s objectives under the ISM are ambitious but achievable. It already has a significant footprint in design and a large pool of technical talent, which can be quickly skilled. Setting up a semiconductor manufacturing ecosystem and translating research into actionable IP are achievable goals, as demonstrated by the progress made under ISM 1. ISM 2 promises to maintain this momentum. By 2030, India could be a significant player in the semiconductor space.
Devangshu Datta
