Semicon 2.0 Explained: ₹1.27 Lakh Crore ISM 2.0 Drops Land, Tech Transfer Subsidies

Meaning of semiconductors: Semiconductors are materials, such as silicon, whose electrical conductivity lies between that of conductors (like copper) and insulators (like glass). This unique property allows engineers to precisely control the flow of electric current through them. By adding small quantities of impurities to pure silicon — a process called doping — the conductivity of the material can be tuned, which is the basic theory behind all modern electronics.

From transistor to chip: Doped semiconductor material is used to make transistors, which act as microscopic electronic switches. Billions of transistors are packed onto a single small piece of silicon to create an integrated circuit (IC), commonly called a chip. These chips perform computing, memory, and power-management functions in every electronic device.

Ubiquity and strategic value: Semiconductors power everything from toasters, smartphones, and cars to data centres, satellites, and fighter jets. Because no modern economy or military can function without chips, semiconductors have become a critical strategic resource amid heightened geopolitical tensions, often described as the "new oil" of the digital economy.

The semiconductor value chain: The industry has three broad stages. First, design, where companies create the blueprint of the chip (fabless companies do only this). Second, fabrication, where the chip is physically manufactured on silicon wafers in a fab (fabrication plant) — the most capital-intensive and technologically demanding stage. Third, ATMP/OSAT — Assembly, Testing, Marking and Packaging / Outsourced Semiconductor Assembly and Test — where finished wafers are cut, packaged, and tested before shipment. India's mission covers all three stages.

What is a node: Chip manufacturing technology is measured in nanometres (nm), referred to as the process node — for example, 28nm or 110nm. Smaller node numbers broadly indicate more advanced, more powerful, and more power-efficient chips. India's fabrication journey has begun with mature nodes in the 28nm–110nm range, which serve automobiles, power electronics, telecom, and industrial applications.

Origin of the Mission: The Union Cabinet approved the Semicon India Programme in December 2021 with an outlay of ₹76,000 crore for the development of a sustainable semiconductor and display manufacturing ecosystem. The India Semiconductor Mission (ISM) was set up as a specialised and independent division under the Digital India Corporation (Ministry of Electronics and IT) to drive long-term semiconductor strategy and implement the schemes.

Components of ISM 1.0: The first phase offered fiscal support of up to 50% of project cost for setting up silicon fabs and display fabs, support for compound semiconductor and ATMP/OSAT facilities, a Design Linked Incentive (DLI) scheme for chip design companies, and the modernisation of the Semi-Conductor Laboratory (SCL), Mohali.

Manufacturing achievements: Under ISM 1.0, twelve manufacturing units have been approved with a cumulative investment of over ₹1.64 lakh crore. These include one silicon fab, one Silicon Carbide fab, an integrated Gallium Nitride Micro LED display fab, and nine packaging units catering to consumer appliances, industrial electronics, automobiles, power electronics, telecommunications, and aerospace. The approved projects are spread across states including Gujarat, Assam, Uttar Pradesh, Punjab, Odisha, and Andhra Pradesh.

Commercial production begins: Out of the 12 approved proposals, three companies — Micron, Kaynes and CG Semi — have already started commercial production of packaged chips, and one more unit is expected to start in 2026. India's first silicon fab, being set up by Tata Electronics in Dholera, Gujarat, with manufacturing technology from Taiwan's PSMC (Powerchip Semiconductor Manufacturing Corporation), is scheduled to be commissioned in 2028.

Design achievements: Twenty-four semiconductor design projects from start-ups and MSMEs have been approved for financial support, while 105 start-ups/MSMEs have been given access to industry-standard Electronic Design Automation (EDA) tools. These firms are designing chips and Systems-on-Chip (SoCs) for satellite communications, drones, surveillance cameras, IoT devices, AI systems, telecom equipment, and smart meters.

A whole-of-value-chain approach: Semicon 2.0 (ISM 2.0) recognises the need for sustained, long-term policy support and aims to build the complete semiconductor ecosystem rather than only subsidising individual plants. It was first announced in the Union Budget 2026–27 and has now been approved by the Cabinet with an outlay of ₹1,27,500 crore.

First pillar — Design: Building on the initial success of 105 chip-design start-ups, the focus is on deepening the design ecosystem and developing indigenous Intellectual Property (IP), chip designs, and system designs, positioning India as a key semiconductor chip design IP country.

Second pillar — Machines and materials: Companies engaged in manufacturing and R&D of semiconductor manufacturing equipment, and in producing materials, chemicals and gases essential for chipmaking, will be incentivised. This is a major new addition, as ISM 1.0 did not cover the upstream supply chain, and it will also help develop India's precision manufacturing industry.

Third pillar — Setting up more fabs: With the first fab scheduled for commissioning in 2028, the government will attract more manufacturers to set up silicon fabs, compound semiconductor fabs, discrete component fabs, and display fabs in India.

Fourth pillar — Strengthening ATMP/OSAT: With the success of existing packaging units, the world now views India as an alternative location for ATMP/OSAT. The new phase will focus on bringing some of the most advanced packaging technologies to India.

Fifth pillar — Research & Development: Having started with 28nm–110nm nodes, the focus will now shift to developing more advanced nodes and technologies in collaboration with leading R&D centres within and outside India.

Sixth pillar — Talent development: Around 68,000 students have already been trained in complex chip design using the latest EDA tools across 315 universities. Semicon 2.0 will deepen this training and engage industry in clean-room operations, fab construction, and ecosystem skills.

From uniform to graded subsidies: ISM 1.0 offered a uniform capital expenditure subsidy of 50% for fabs and assembly plants. Under ISM 2.0, this has been replaced with a graded structure — silicon fabs will receive a subsidy of 40%, other fabs (compound semiconductor and display fabs) will get 35%, advanced packaging units 35%, and conventional packaging units 25%. Incentives of up to 30% are reported for investments in semiconductor equipment, chemicals, gases, and materials.

No subsidy for technology transfer: ISM 1.0 had a provision to cover a portion of technology transfer costs — the fees that Indian companies pay foreign partners for access to manufacturing know-how (for instance, Tata Electronics sourcing technology from Taiwan's PSMC). However, no disbursals were ever made under this provision. According to officials quoted in media reports, such costs are opaque, almost impossible to calculate reliably, and vary with changes in the partnership — hence the provision has been dropped.

No central subsidy for land: The Centre may also no longer subsidise land acquisition for chip plants. State governments, which control land and compete to attract semiconductor projects through their own state semiconductor policies (as in Gujarat, Uttar Pradesh, Assam, and Odisha), are expected to take the lead on providing land and allied infrastructure.

Equity participation in design companies: Beyond grants, the government may take equity stakes in large companies and start-ups that design semiconductor chips, which rank higher on strategic and commercial parameters. Government investment will depend on whether these companies are able to raise money from private equity investors — a market-validation test designed to back only credible ventures.

Why the shift matters: The redesign reflects lessons from ISM 1.0 — it shifts scarce fiscal resources from a flat "cash-back" model to a supply-chain-first model, prioritising chip design, the broader materials and equipment ecosystem, and only then new manufacturing units. It also embeds cooperative federalism, with the Centre funding capital subsidies and states contributing land, power, water, and logistics.

Concentrated global supply chains: Advanced chip fabrication is heavily concentrated in Taiwan, South Korea, and a few other economies, making global supply chains vulnerable to geopolitical shocks. The COVID-19 chip shortage crippled automobile and electronics production worldwide, and the ongoing global memory chip shortage has renewed urgency for capacity expansion.

The global subsidy race: Major economies — the United States (CHIPS and Science Act), the European Union (European Chips Act), China, Japan, and South Korea — are offering massive incentive packages to onshore chip manufacturing. India's mission positions the country as a trusted "China Plus One" alternative in diversified global supply chains.

Strategic autonomy and national security: Semiconductors underpin defence systems, telecom networks, and critical infrastructure. Semicon 2.0 explicitly aims to strengthen national security through supply chain resilience and to establish technological leadership in critical sectors, complementing initiatives such as Make in India, Digital India, and Atmanirbhar Bharat.

Electronics value addition: By inserting itself into the global chip supply chain, New Delhi seeks to deepen domestic value addition in electronics manufacturing, moving beyond assembly of imported components towards higher-value design and fabrication — which is also why the Cabinet simultaneously approved the ₹62,500 crore second edition of the mobile phone manufacturing scheme.

Capital intensity and long gestation: A single advanced fab can cost several billion dollars and takes years to build and stabilise, requiring patient capital and predictable policy over decades.

Infrastructure demands: Fabs need uninterrupted high-quality power, millions of litres of ultrapure water daily, world-class clean rooms, and efficient logistics — areas where states will now carry greater responsibility under the new scheme.

Technology access and talent depth: India still depends on foreign partners for production-grade fabrication technology and on imported lithography equipment. While design talent is abundant, specialised manufacturing-process talent remains scarce.

Ecosystem gaps: The absence of domestic suppliers of chemicals, gases, equipment, and precision components raises costs and lead times — a gap the second pillar of Semicon 2.0 directly targets.

India's semiconductor strategy is maturing from ecosystem creation to ecosystem consolidation. The success of Semicon 2.0 will depend on the timely commissioning of the first silicon fab in 2028, seamless Centre–state coordination on land, power, and water, and the ability of the graded incentive structure to still attract globally competitive investors despite lower headline subsidies. Deepening the domestic supply chain of equipment, chemicals, and gases, moving towards sub-28nm advanced nodes through R&D partnerships, converting India's design talent into indigenous chip IP, and ensuring transparent, time-bound disbursal of incentives will be critical. A stable, technology-neutral, and long-term policy environment — insulated from short-term fiscal pressures — remains the surest path to making India a trusted global semiconductor hub by 2035.