1. Under ISM 2.0, the government has widened the scope of incentives, lowered its funding share for mature segments and redesigned the Design Linked Incentive (DLI) scheme to attract larger companies and private capital, according to S Krishnan, secretary, Ministry of Electronics & IT (MeitY).
2. Compared to the first iteration of the India Semiconductor Mission (ISM), government incentives have been slashed in ISM 2.0. For instance, the first scheme carried a uniform capex subsidy of 50% for fabs and assembly plants.
3. However, under ISM 2.0, silicon fabs will receive a subsidy of 40%, and other fabs will get 35%. Similarly, the incentive for advanced packaging has been kept at 35%, and 25% for conventional packaging. Beyond that, ISM 2.0 will also offer government subsidies for research and development, and talent development in the semiconductor sector.
4. 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.
Why is ISM 2.0 important for India?
5. The country’s foray into semiconductor production and packaging has been outlined as a strategic move by New Delhi to insert itself into the global chip supply chain and establish the sector to deepen domestic value addition in its electronics sector.
6. Semiconductors — used to power devices from toasters to fighter jets — have become a critical resource amid heightened geopolitical tensions over the last few years.
7. According to Ashok Chandak, President of the India Electronics and Semiconductor Association (IESA), 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 its own capabilities across design, tools, materials, and upstream inputs—areas that define long-term competitiveness and strategic autonomy.
8. By 2029, India expects to achieve the capability to design and manufacture chips required for nearly 70-75% of domestic applications, and by 2035, the country aims to be among the top semiconductor nations globally.
How is ISM 2.0 different from ISM 1.0?
9. The India Semiconductor Mission (ISM) 1.0, launched in 2021, was conceived as a state-backed initiative to build a full-stack semiconductor ecosystem, spanning fabrication, assembly and packaging, chip design, and display manufacturing. Under the scheme, cumulative investments of around Rs 1.64 lakh crore have been committed.
10. Under ISM 1.0, the government has approved 12 semiconductor projects, including assembly, testing, marking and packaging (ATMP/OSAT) facilities being set up by companies such as Micron Technology, as well as a semiconductor fabrication plant being developed by Tata Electronics in partnership with Taiwan’s Powerchip Semiconductor Manufacturing Corporation (PSMC).
11. At least three of these facilities, including those of Micron, Kaynes Semicon, and CG Semi, have commenced commercial production, while the Tata fabrication plant remains under construction. Chips produced at these facilities are also being exported.
12. However, the government has also been looking to support the broader semiconductor ecosystem while considering whether the incentives available for chip packaging, currently at 50% of the project cost, should be rationalised. In the Union Budget 2026-27, Finance Minister Nirmala Sitharaman announced India Semiconductor Mission 2.0, aimed at promoting semiconductor equipment and materials manufacturing, developing full-stack Indian intellectual property (IP), and strengthening supply chains.
13. ISM 2.0 expands the government’s focus beyond fabrication plants to include semiconductor equipment, materials, chemicals, design tools, research and development (R&D), talent development, and supply-chain resilience. It marks a clear shift from a fab-centric approach to a comprehensive value-chain strategy.
14. Under the new scheme, the government will provide grants and may also take equity stakes in large companies and start-ups engaged in semiconductor design and other strategic segments of the value chain. The extent of government investment will depend, among other factors, on the companies’ ability to mobilise private capital.
15. Companies establishing facilities to manufacture semiconductor equipment, as well as the chemicals and specialty gases used in chip production, will be eligible for Central Government incentives of up to 30% of the total project cost.
16. Incentives for research and development in the design and manufacture of cutting-edge semiconductor technologies may cover up to 75% of eligible project costs through combined support from the Centre and state governments. Similar incentives are also proposed for talent development in the semiconductor sector.
17. Under the research-linked incentive scheme, the Centre will particularly encourage work on 7-nanometre technology. By comparison, the Tata fabrication plant currently under construction is expected to manufacture chips at the 28-nanometre node, which remains in strong commercial demand but is not considered cutting-edge.
A visual comparison of India Semiconductor Mission 1.0 and 2.0, showcasing how India’s semiconductor policy has evolved from attracting chip manufacturing to building an end-to-end semiconductor ecosystem. (Infographic source: AI generated)
BEYOND THE NUGGET: Global Semiconductor Supply Chain- A closed ecosystem
1. The global semiconductor industry is dominated by a handful of countries and companies. Taiwan and South Korea together account for around 80% of the global foundry capacity for advanced chips. Moreover, only one company, the Netherlands-based ASML, manufactures extreme ultraviolet (EUV) lithography machines, which are essential for producing the world’s most advanced semiconductor chips.
2. Raw materials such as silicon wafers, specialty gases, and chemicals are sourced from countries including Japan, Germany, the United States, and China. The UK-based chip designer Arm, in which Nvidia holds a stake, is the world’s leading supplier of chip architecture used in products ranging from smartphones to gaming consoles. Overall, semiconductor manufacturing operates through a highly specialised global ecosystem with very high entry barriers.
3. The chip design market is overwhelmingly dominated by US-based firms such as Nvidia, Qualcomm, and AMD. Among them, Nvidia, which dominates the market for high-performance graphics processing units (GPUs), has expanded its leadership across multiple sectors, including gaming, cryptocurrency mining, and, increasingly, artificial intelligence (AI).
Why does the supply chain matter?
4. The semiconductor supply chain is of strategic importance because semiconductors power smartphones, AI systems, electric vehicles, medical devices, satellites, telecommunications infrastructure, and defence equipment.
5. The heavy concentration of advanced chip manufacturing in Taiwan creates supply chain vulnerabilities and could exacerbate geopolitical risks, particularly in the event of cross-Strait tensions.
6. The semiconductor supply chain is critical for economic security, prompting countries to invest in domestic chip ecosystems to reduce dependence on imports and strengthen supply-chain resilience.
7. Countries are competing for technological leadership. Control over advanced semiconductor technologies is increasingly linked to competitiveness in artificial intelligence, quantum computing, advanced manufacturing, and national defence.
Post Read Questions
(1) With reference to India Semiconductor Mission (ISM) 2.0, consider the following statements:
1. It expands government support beyond semiconductor fabrication to areas such as equipment, materials, R&D and talent development.
2. It retains a uniform capital subsidy of 50% for all semiconductor manufacturing segments.
3. It seeks to strengthen India’s role in the global semiconductor supply chain.
Which of the statements given above is/are correct?
(a) 1 and 3 only
(b) 2 only
(c) 1 and 2 only
(d) 1, 2 and 3
(2) With reference to India Semiconductor Mission (ISM) 2.0, which one of the following best describes the change in the government’s incentive structure?
(a) Uniform subsidy across all semiconductor segments.
(b) Differentiated incentives based on the maturity of different segments of the semiconductor ecosystem.
(c) Incentives limited only to semiconductor fabrication plants.
(d) Incentives only for foreign semiconductor companies.
Answer Key
1. (a), 2. (b)
(Sources: Cabinet approves Semiconductor Mission 2.0 with Rs 1.27 lakh crore outlay, FM Sitharaman announces chip manufacturing scheme 2.0, but will it go beyond fabs?, UPSC Issue at a Glance | India’s Semiconductor Push: 4 Key Questions You Must Know for Prelims and Mains)
🚨 Click Here to read the UPSC Essentials magazine for July 2026. Share your views and suggestions in the comment box or at manas.srivastava@indianexpress.com🚨
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The India Semiconductor Mission 2.0 seeks to position the country as a globally competitive hub for semiconductor manufacturing, design, and innovation. (Image source: AI generated) 
A visual comparison of India Semiconductor Mission 1.0 and 2.0, showcasing how India’s semiconductor policy has evolved from attracting chip manufacturing to building an end-to-end semiconductor ecosystem. (Infographic source: AI generated)
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