India’s Rs 1.27 trillion ISM 2.0 reduces fab subsidies but expands support for semiconductor equipment, chemicals, gases and materials.
India is moving into the next phase of its semiconductor strategy with a greater focus on building the ecosystem around chip manufacturing rather than relying primarily on large subsidies to attract individual projects.
The government has approved the second phase of the India Semiconductor Mission (ISM 2.0) with an outlay of Rs 1.27 trillion, nearly twice the allocation under the first phase. The programme comes after India secured approvals for its first commercial semiconductor fab along with several assembly, testing, marking and packaging (ATMP) and outsourced semiconductor assembly and test (OSAT) facilities.
Under ISM 1.0, launched in 2021, the government offered a uniform fiscal incentive of 50 per cent to semiconductor manufacturing projects. The policy helped attract investments from companies including Micron Technology, Tata Electronics and CG Power, taking the total number of approved projects to 12.
ISM 2.0 introduces a more differentiated incentive structure. Support for silicon fabs has been reduced to 40 per cent, while compound semiconductor and display fabs and advanced packaging projects can receive up to 35 per cent. Conventional packaging projects are eligible for incentives of up to 25 per cent.
Industry experts said the lower subsidies may not necessarily weaken India’s position, as companies also consider factors such as engineering talent, infrastructure, production costs, market access and supply-chain resilience.
A major change is the programme’s focus on suppliers and supporting industries. Investments in semiconductor equipment, chemicals, industrial gases and materials can receive incentives of up to 30 per cent. This is intended to reduce India’s dependence on imports and address supply-chain gaps that could increase manufacturing costs and create delays.
The success of ISM 2.0, however, will depend heavily on execution. Semiconductor projects require reliable power and water, specialised infrastructure, skilled workers, domestic suppliers and timely approvals.
With several ISM 1.0 projects still under construction, the new programme provides policy continuity while broadening India’s semiconductor ambitions. The key challenge now is to turn approved investments into operational facilities and develop a complete ecosystem capable of supporting large-scale chip manufacturing.
