India Semiconductor Mission 2.0 Explained: Why India Is Cutting Chip Subsidies While Expanding Industry Support

India has unveiled the next phase of its semiconductor incentive programme, signalling a change in strategy as it looks to establish a stronger domestic chip manufacturing ecosystem. The India Semiconductor Mission (ISM) 2.0, approved with a budget of ₹1.27 lakh crore, moves beyond offering generous subsidies for manufacturing plants and instead aims to strengthen the entire semiconductor value chain.

The revised policy comes after the first phase of the mission helped attract marquee investments into semiconductor fabrication and chip packaging. Going forward, the government appears focused on creating the infrastructure and supplier network needed to support sustainable growth in the sector.

Incentives Become More Targeted Under ISM 2.0

When the government launched the first phase of the India Semiconductor Mission in 2021, it introduced a uniform 50% fiscal incentive to encourage global chipmakers to set up operations in India. The policy played a role in bringing projects from companies such as Micron Technology, Tata Electronics, and CG Power, marking a significant step for India's semiconductor manufacturing ambitions.

The second phase introduces a more selective incentive structure. Under ISM 2.0, silicon fabrication units will receive up to 40% fiscal support, while compound semiconductor fabs, display fabs, and advanced packaging facilities can receive incentives of up to 35%. Conventional semiconductor packaging projects will be eligible for support of up to 25%.

Although the headline subsidy has been reduced, industry observers believe investors will continue evaluating India based on a broader set of factors, including policy certainty, infrastructure readiness, engineering talent, and long-term demand.

Greater Emphasis on the Semiconductor Supply Chain

One of the biggest changes in ISM 2.0 is its focus on developing industries that support chip manufacturing.

The government has proposed incentives of up to 30% for companies manufacturing semiconductor equipment, specialty chemicals, industrial gases, raw materials, and related components. These businesses form the backbone of semiconductor production but have historically had a limited presence in India.

By encouraging domestic production across these segments, the government aims to reduce dependence on imports, improve supply chain resilience, and create an ecosystem that can support future semiconductor investments.

Conclusion 

While ISM 2.0 broadens the scope of government support, its success will ultimately depend on execution. Semiconductor manufacturing requires reliable infrastructure, uninterrupted utilities, skilled manpower, efficient logistics, and faster regulatory clearances.

Many of the projects approved under the first phase are still under development, making the next few years crucial for the sector. If implementation remains on track, ISM 2.0 could help India transition from being primarily an electronics manufacturing destination to becoming a more integrated player in the global semiconductor supply chain.

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