The Big Picture

India is preparing to make its most ambitious bet yet on semiconductor self-reliance. The Ministry of Electronics and Information Technology (MeitY) has proposed a ₹1 lakh crore (approximately $12 billion) outlay for the second phase of the India Semiconductor Mission (ISM 2.0) a proposal that, if approved, would represent one of the largest industrial policy commitments in the country's recent technology history.

The Union Budget 2026–27, presented by Finance Minister Nirmala Sitharaman on February 1, 2026, formally announced the launch of ISM 2.0, with an initial budgetary allocation of ₹1,000 crore for FY 2026–27 to begin research, training, and ecosystem development activities. The full ₹1 lakh crore proposal is currently under Cabinet review, with formal approval expected by end of March 2026 and a comprehensive announcement anticipated at the India Semiconductor Summit in late April 2026.

This is not a continuation of what India has done before.

It is a strategic upgrade — a deliberate shift from building chip factories to building an entire chip civilization.

What ISM 1.0 Achieved - And Why It Was Just the Beginning

To understand ISM 2.0, one must first appreciate what the first phase accomplished.

Launched in December 2021 with an incentive framework of ₹76,000 crore, ISM 1.0 offered fiscal support of up to 50% for:

• Silicon fabrication units

• Semiconductor assembly, testing, marking and packaging (ATMP) facilities

• Compound semiconductor plants

As of December 2025, 10 semiconductor projects with cumulative investment commitments of approximately ₹1.60 lakh crore have been approved across six states - Gujarat, Karnataka, Tamil Nadu, Assam, Odisha, and Uttar Pradesh. These projects span silicon fabrication units, silicon carbide fabs, advanced and memory packaging facilities, and specialized assembly and testing infrastructure.

A landmark milestone was crossed on February 28, 2026, when Prime Minister Narendra Modi inaugurated Micron Technology’s ₹22,500 crore semiconductor Assembly, Test and Packaging (ATMP) facility in Sanand, Gujarat - India’s first operational high-volume chip production plant. Four of the ten approved ISM 1.0 facilities are expected to begin chip production by late 2026.

Yet even as these milestones were achieved, a fundamental gap remained. India was building the factories, but still importing nearly everything that goes into them the equipment, the chemicals, the gases, the wafers, and most critically, the chip designs themselves. ISM 2.0 is designed to close that gap..

What ISM 2.0 Is Actually Building: Five Core Pillars

The second phase of the India Semiconductor Mission represents a shift from a fabrication-centric model to a full-stack semiconductor ecosystem strategy.

• Semiconductor Equipment and Materials Manufacturing: India currently imports over 85% of semiconductor-grade inputs. ISM 2.0 explicitly targets domestic production of specialty chemicals, industrial gases, photoresists, silicon wafers, and fabrication equipment. The Union Budget also allocated Rs. 50 billion over five years to establish integrated chemical parks.

  
  

• Full-Stack Indian Chip Design IP: The expanded Design Linked Incentive (DLI) scheme aims to support at least 50 fabless semiconductor companies. As of January 2026, the DLI scheme supports 24 startups, which have attracted nearly Rs. 430 crore in venture capital and completed 16 tape-outs. India's indigenous processors - DHRUV64, SHAKTI, THEJAS, and VIKRAM form the early foundation of a homegrown processor ecosystem.

  
  

• Advanced Node Research Roadmap: ISM 2.0 includes a roadmap toward 3nm and 2nm process nodes. India's current domestic fabrication capability is at 180nm. First tenders for 3nm and 2nm R&D; centers are expected by mid-2026.

  
  

• Supply Chain Fortification: The mission focuses on reducing India's structural dependence on concentrated manufacturing hubs in East Asia - a vulnerability exposed during the 2020-2022 chip shortage.

  
  

• Workforce Development: ISM 2.0 aims to create over one lakh skilled semiconductor engineers within five years. As of January 2026, approximately 67,000 students and over 1,000 startup engineers are actively using advanced EDA tools on the national chip design platform, with 2.25 crore tool hours recorded.

The Electronics Components Manufacturing Scheme (ECMS): The Supporting Pillar

ISM 2.0 is reinforced by the Electronics Components Manufacturing Scheme (ECMS), originally launched in April 2025 with an outlay of Rs. 22,919 crore. The scheme attracted investment commitments nearly double its initial targets, prompting the government to raise the allocation to Rs. 40,000 crore in Union Budget 2026-27.

The first seven ECMS-approved projects involve investments of Rs. 5,532 crore and are expected to generate production worth Rs. 44,406 crore while creating over 5,000 direct jobs, spanning multi-layer printed circuit boards, camera module sub-assemblies, copper clad laminates, and polypropylene films.

Why This Matters: The Global Context

The semiconductor industry has entered a phase of intense strategic competition. Governments across the United States, European Union, Japan, South Korea, and China are deploying hundreds of billions of dollars in incentives to localize chip production. The US CHIPS Act alone committed over $50 billion toward domestic semiconductor manufacturing.

India's semiconductor market is projected to reach $100-110 billion by 2030. The country consumes nearly 20% of global microprocessors. By 2029, India aims to design and manufacture chips for 70-75% of domestic applications. Remaining a consumer market for imported semiconductors carries real economic and national security risks..

Sectors and Companies in Focus

• Tata Electronics - Already a key ISM 1.0 participant, positioned to benefit significantly from ISM 2.0 ecosystem incentives.

• Micron Technology - Operational ATMP facility in Sanand, Gujarat contributing to India's chip production base.

• DLI Semiconductor Startups - Companies designing AI chips, automotive processors, IoT sensors, and 5G infrastructure chips.

• Specialty Chemical and Industrial Gas Companies - Domestic producers capable of developing semiconductor-grade inputs.

• Indirect Beneficiaries - Electronics manufacturing services, automotive component manufacturers, telecom infrastructure companies, data center operators, and industrial cleanroom construction firms..

Key Risks and Structural Challenges

• Extremely high capital intensity - fabrication plants take multiple years to reach full production capacity.

• Infrastructure requirements including uninterrupted power supply, ultra-pure water systems, and vibration-free environments.

• Import dependency of over 85% for semiconductor-grade materials means localization is a long-term objective.

• Talent gap - capturing engineering capability within domestically-owned IP requires competitive startup ecosystem and strong IP protection frameworks.

• India's current capability is at 180nm. The journey to 3nm and 2nm nodes will require decades of sustained investment.

What Investors Should Watch in 2026

• Cabinet approval of full Rs. 1 lakh crore ISM 2.0 outlay - expected by end of March 2026.

• Formal announcement at India Semiconductor Summit - April 2026.

• First tenders for 3nm and 2nm R&D; centers - expected mid-2026.

• Commercial chip production from 4 of 10 ISM 1.0 facilities - expected late 2026.

• DLI scheme expansion - track growth in fabless startups, tape-outs, and VC funding.

• ECMS project production ramp-up from first seven approved component manufacturing projects.

The Bottom Line

India's push through ISM 2.0 represents a strategic recognition that technological self-reliance in the digital era requires genuine, deep capability in semiconductor design and manufacturing not just the ability to assemble or test chips designed and fabricated elsewhere.

By layering fabrication incentives with materials production, fabless design support, advanced research roadmaps, and workforce training initiatives, India is attempting to build a multi-layered semiconductor ecosystem that transforms its role within the global technology supply chain over the next decade.

The road ahead is long, capital intensive, and technically demanding. But the foundation now anchored by operational facilities, approved projects worth Rs. 1.60 lakh crore, a growing startup design community, and a clear policy architecture is more concrete than it has ever been.

India is no longer simply consuming the chips that power the modern economy. It is working, deliberately and systematically, to make them.rmational purposes only and does not constitute investment advice.