India’s Semiconductor Mission 2.0: From Fab Dreams to Foundational Depth

India’s chip ambitions are entering a decisive phase. The government has rolled out Semiconductor Mission 2.0, an expanded push to reduce import dependence and build a domestic ecosystem spanning fabs, design, and packaging. For investors, this isn’t just industrial policy—it’s a roadmap that could reshape listed opportunities in electronics, manufacturing, and allied sectors. The first phase of ISM in 2021 laid the groundwork; the new phase is about execution, scale, and attracting global capital into India’s semiconductor story.

ISM: A Critical Analysis of Progress and Challenges

Here is the insight into the detailed progress and challenges:

• Financial Outlay

India Semiconductor Mission 2.0 proposes a financial outlay of $20 billion (₹1.76 lakh crore), doubling the allocation from ISM 1.0, which stood at ₹76,000 crore. Of this, ₹5,000 crore is earmarked for Design Linked Incentives (DLI), a 233% increase from the ₹1,500 crore allocated earlier.

The expanded scope includes compound semiconductor fabs, advanced packaging, display fabs, capital equipment manufacturing, and specialised chemicals and gases. This diversification aims to reduce India’s 90% import dependency on chips and position it as a credible alternative in the global supply chain.

• Indigenous Design

ISM 2.0 prioritises chip design and intellectual property creation, with over 70 startups and institutions granted access to Electronic Design Automation (EDA) tools and IP cores. ISRO’s Vikram processor, a 32-bit space-grade chip developed indigenously, marks a milestone in domestic design capabilities. The processor is qualified for aerospace and defence applications, showcasing India’s ability to produce high-reliability chips.

The DLI scheme supports companies with up to ₹15 crore and offers 6%–4% incentives on net sales turnover for five years, fostering a robust design ecosystem.

• OSAT Infrastructure

India’s first end-to-end Outsourced Semiconductor Assembly and Test (OSAT) pilot line was launched in Sanand, Gujarat, in August 2025. Micron’s Assembly, Testing, Marking, and Packaging (ATMP) facility, with an investment of $825 million, is expected to generate 5,000 direct and indirect jobs. ISM 2.0 includes targeted subsidies for packaging units, with up to 50% fiscal support for ATMP/OSAT facilities.

The government aims to establish cluster parks in states such as Assam, Odisha, and Punjab to support packaging and testing infrastructure, thereby enabling economies of scale and reducing turnaround times for global clients.

• Supply Chain Development

ISM 2.0 embeds Micro, Small, and Medium Enterprises (MSMEs) into every major link of the semiconductor value chain, from wafer processing to chemical delivery systems. More than 1 million engineers with expertise in Artificial Intelligence (AI), cloud, and electronics are being mobilised to support MSME-led R&D and testing services.

MSMEs are now eligible for long-term procurement contracts with global players like Micron, Foxconn, and Renesas. Dedicated cluster parks and certification mandates ensure that high-purity materials and globally accredited chemicals are sourced locally, resulting in a 15%–30% cost reduction compared to global peers.

• Display and Compound Fabs

ISM 2.0 includes India’s first display fabrication facility and compound semiconductor fabs, with Dixon Technologies planning a $3 billion LED-to-OLED display fab. These fabs will receive differentiated subsidies based on capital intensity, with silicon wafer fabs getting the highest support. Compound semiconductor units, which are less capital-intensive, will receive proportionally lower subsidies. The scheme also supports silicon photonics and MEMS sensor fabs, expanding India’s capabilities beyond traditional CMOS technologies.

India has signed joint research agreements with the US National Science Foundation and partnered with companies such as Micron, Foxconn, and Renesas. Japan leads in equipment and raw material supply, holding 30% of the global market share in semiconductor machinery and 48% in parts and materials. South Korea and Taiwan are replicating Japan’s model by forming joint ventures and adapting to India’s regulatory landscape.

• Infrastructure Readiness

Semiconductor fabs require 24×7 power and over 10 million litres per day of ultra-pure water. ISM 2.0 mandates infrastructure readiness, including the handling of hazardous waste and adherence to cleanroom standards.

Gujarat’s Dholera fab zone and Sanand ATMP cluster have been developed with dedicated utility corridors. The Semiconductor Laboratory in Mohali is undergoing a modernisation package to transform into a brownfield fab. These infrastructure upgrades are crucial for meeting global standards and attracting Tier-1 suppliers.

Risk and Challenges

India lacks the capability to manufacture advanced nodes below 10 nm, focusing instead on mature nodes such as 28–65 nm. Each fab costs $5–10 billion, and the collapse of the Vedanta–Foxconn JV highlights investor risk. Delays in disbursement, Centre–State coordination issues, and regulatory uncertainty have slowed project execution.

India remains dependent on imports for lithography, wafers, and speciality gases. Geopolitical risks, such as US–China tensions and supply shocks, further complicate India’s entry-level competitiveness.

Ancillary Sector Investment Opportunities

India’s semiconductor push under ISM 2.0 unlocks high-potential ancillary opportunities for SMEs and mid-cap firms in chemicals, speciality gases, ultrapure water systems, cleanroom infrastructure, and capital equipment manufacturing.

Key listed companies under the spotlight include Tata Elxsi and Dixon Technologies, both active in design and advanced packaging; Hindustan Aeronautics Ltd and BEL for defence-grade electronics integration; and CG Power and Industrial Solutions, which is linked to OSAT initiatives. Linde India and Gujarat Fluorochemicals are gaining traction in speciality gases and chemicals, while Thermax and Honeywell Automation India are relevant for cleanroom and utility infrastructure.

Conclusion

For retail traders and investors, India’s Semiconductor Mission 2.0 presents both exciting opportunities and cautionary notes. The government’s push towards domestic chip design, packaging, and supply chain development opens avenues in ancillary sectors, from speciality chemicals to cleanroom infrastructure. However, risks such as high capital requirements, technological gaps, and geopolitical uncertainties remain.

Investors should weigh long-term growth prospects against execution challenges, focusing on firms that directly benefit from ISM 2.0 incentives and domestic supply chain expansion, while balancing opportunity with prudent risk management.

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Sources

Government of India Press Information Bureau
Ministry of Electronics and Information Technology, Indian Semiconductor Mission
The Economic Times
CNBC TV18
TICE
Study IQ
Communications Today
Vision IAS
ScanX
Dhristi IAS