FM Sitharaman announces chip manufacturing scheme 2.0, but will it go beyond fabs? 

Though the FM did not announce the overall outlay for ISM 2.0 on Sunday, the Finance Ministry has allocated Rs 1,000 crore for 2026-27 to the IT Ministry for the scheme’s second phase.

“India Semiconductor Mission (ISM) 1.0 expanded India’s semiconductor sector capabilities. Building on this, we will launch ISM 2.0 to produce equipment and materials, design fullstack Indian IP, and fortify supply chains. We will also focus on industry-led research and training centres to develop technology and skilled workforce,” FM Sitharaman said in her Union Budget 2026-27 speech Sunday.

Why ISM 2.0 

Under the first phase of the India Semiconductor Mission, the Centre extensively focused on setting up the physical infrastructure that can manufacture chips — from a fabrication plant being set up by the Tata Group, to assembly, testing and packaging plants by the likes of Micron Technology, the Tatas, CG power and Kaynes Semicon, among others. However, internally, the government was looking at supporting the broader chip ecosystem, while considering whether sops available for chip packaging — currently at 50% — should be reduced.

ISM 2.0 allows the government to now have an expanded focus beyond fabs — covering semiconductor equipment, materials, chemicals, design tools, R&D and training and supply-chain resilience.

“The Finance Minister’s statement on ISM 2.0 is a very important signal for India’s semiconductor ambitions. It marks a clear evolution from a fab-centric approach to a full value-chain strategy, covering equipment, materials, Indian IP, and supply-chain resilience ( chemicals, gases, materials, etc ). This is critical if India is to move from being a participant to a structural player in the global semiconductor ecosystem. For India, this means the ambition is no longer limited to manufacturing chips, but to own capabilities across design, tools, materials, and upstream inputs—areas that define long-term competitiveness and strategic autonomy,” said Ashok Chandak, President of the India Electronics and Semiconductor Association (IESA).

ISM 1.0: the journey so far 

Last August, the Union Cabinet cleared four new semiconductor assembly and testing plants under its India Semiconductor Mission, which have a total financial outlay of Rs 4,594 crore. Two of these plants will come up in Odisha, and one each in Punjab and Andhra Pradesh. With these, the government is now offering financial incentives for the construction of a total of 10 chip-related factories, ranging from a fabrication plant to assembly and testing operations.

Before these, the government has managed to attract six chip plants under its Rs 76,000-crore India Semiconductor Mission. This includes the Tata-PSMC fab, being built at a cost of roughly $11 billion, along with assembly and testing plants by US-based Micron Technology, the Tatas and Murugappa Group’s CG Power in partnership with Japan’s Renesas, Kaynes Semicon and HCL-Foxconn. Some of these facilities are in an advanced stage of construction, with the first made-in-India chip also rolled out last year.