The Union Cabinet has cleared the Rs 1.27 lakh crore Semiconductor Mission 2.0 to expand the domestic chip supply chain over six years. This move aims to localize chip production and essential manufacturing materials, building on the 12 projects approved under the first phase. Investors should note the recalibrated subsidy structure, which now offers 40% for silicon fabs and 35% for assembly and packaging units.
The Indian government has officially approved the second phase of the India Semiconductor Mission (ISM 2.0), committing a budget of Rs 1.27 lakh crore over the next six years. This policy update is designed to move beyond basic fabrication by strengthening the entire ecosystem, including the production of specialized gases and chemicals required for advanced chip manufacturing.
Recalibrated Subsidy Structure
A key change in ISM 2.0 compared to the initial phase involves the adjustment of capital subsidies. While the first mission provided a uniform 50% incentive for various types of plants, the new structure is more targeted. Silicon fabrication facilities will now be eligible for a 40% subsidy, while other specialized fabs and advanced packaging units will receive 35%. Conventional packaging operations are set at a 25% incentive level. This shift suggests a focus on prioritizing high-complexity manufacturing processes within the domestic market.
Building on Phase One Success
The foundation for this expansion was laid by ISM 1.0, which launched in 2021 and attracted approximately Rs 1.64 lakh crore in committed investments. This initial phase successfully paved the way for 12 approved projects, including facilities by Micron Technology, Tata Electronics, Kaynes Semicon, and CG Semi. Some of these units, particularly in assembly and testing, have already started commercial production and initiated exports, marking a significant step in India's integration into global electronic supply chains.
Strategic Objectives and Next Steps
India has set a goal to design and manufacture chips for 70-75% of domestic demand by 2029. By providing incentives for the broader supply chain—such as component materials and packaging—the government aims to increase the value-added component of electronics manufactured within the country. The long-term vision seeks to establish India as a major global hub for semiconductor technology by 2035.
For investors and the broader market, the monitorable will be the pace of project execution and how companies manage the capital-intensive nature of these facilities. While government subsidies reduce the initial financial burden, the success of these projects will ultimately depend on the ability of manufacturers to achieve efficient capacity utilization and navigate the complex global semiconductor market. As these projects move from approval to commissioning, stakeholders will likely watch for updates on raw material sourcing and progress in high-end fabrication capabilities.