India’s Semiconductor Push Gets a Powerful Reset with ISM 2.0 in Union Budget 2026

Union Budget 2026 signals a decisive shift as India expands its semiconductor ambition from fabs to full-stack design, equipment and supply-chain strength.

New Delhi, February 1, 2026:
Finance Minister Nirmala Sitharaman has placed semiconductors firmly at the centre of India’s industrial and technology strategy in the Union Budget 2026–27, announcing the launch of India Semiconductor Mission (ISM) 2.0. Building on the foundations laid over the past three years, the new phase significantly widens the scope of government support and sharply increases funding for electronics components, underscoring India’s ambition to become a globally competitive semiconductor and electronics manufacturing hub.

At the heart of the announcement is a clear recognition that semiconductor leadership is no longer limited to chip fabrication alone. ISM 2.0 expands the focus to include semiconductor equipment, materials, indigenous intellectual property, and resilient supply chains. This marks a strategic evolution from the earlier mission, which primarily concentrated on attracting fabrication, assembly, testing and packaging units to India.

“Building on the progress of the first phase, ISM 2.0 will strengthen India’s capabilities across equipment, materials, design and supply chains,” the Finance Minister said while presenting the Budget.

A major highlight of the Budget is the increase in outlay for the Electronics Component Manufacturing Scheme to ₹40,000 crore, almost doubling the earlier allocation. The enhanced funding reflects the strong industry response to the scheme, with investment proposals far exceeding initial expectations. By boosting support for components such as printed circuit boards, camera modules, optical and passive components, the government aims to address one of the weakest links in India’s electronics value chain.

The first phase of the semiconductor mission has already resulted in approvals for multiple large projects, with cumulative investment commitments running into several lakh crore rupees. These include fabrication units, advanced packaging facilities and compound semiconductor plants, spread across different states. ISM 2.0 seeks to deepen this momentum by ensuring that critical upstream elements—tools, materials and design capabilities—are also developed domestically.

A key pillar of the revamped mission is full-stack Indian IP and chip design. By encouraging local companies and startups to develop indigenous designs, the government hopes to move India up the value chain, from manufacturing-led growth to innovation-driven leadership. Industry-led research and training centres are expected to play a central role in this transition, helping bridge the talent gap in semiconductor design, process engineering and advanced manufacturing.

The Budget’s emphasis on supply-chain resilience comes at a time when global semiconductor ecosystems are being reshaped by geopolitical tensions and recurring disruptions. For India, reducing dependence on imports for critical components and equipment is not only an economic imperative but also a strategic one, especially for sectors such as defence, automotive electronics, telecommunications and artificial intelligence.

Market reaction to the announcements has been largely positive, with electronics manufacturing and component companies seen as direct beneficiaries of the expanded incentives. Industry experts believe the higher allocation will accelerate capacity creation, attract global partners, and encourage multinational companies to localise more of their supply chains in India.

However, challenges remain. Semiconductor manufacturing is capital-intensive and technologically complex, requiring sustained policy support, reliable infrastructure, skilled manpower and close coordination between the Centre, states and industry. While ISM 2.0 provides a stronger framework and clearer direction, execution will be critical in determining how quickly India can translate policy intent into global competitiveness.

Overall, the Union Budget 2026 marks a significant inflection point for India’s semiconductor journey. By coupling increased financial support with a broader, more integrated vision, the government has signalled that semiconductors are no longer a niche industrial policy, but a core pillar of India’s long-term economic and strategic roadmap. As global demand for chips continues to surge, ISM 2.0 positions India to play a far more influential role in the world’s semiconductor future.