India budget signals push beyond phone assembly with ISM 2.0, bigger components incentives

On Feb. 1, when Finance Minister Nirmala Sitharaman read out her seventh Union Budget in Parliament, the most consequential lines for India’s industrial future took less than a minute.

“India Semiconductor Mission (ISM) 1.0 expanded India’s semiconductor sector capabilities,” she said. “Building on this, we will launch ISM 2.0 to produce equipment and materials, design full‑stack Indian IP, and fortify supply chains. We will also focus on industry‑led research and training centres to develop technology and skilled workforce.”

With that brief passage, and a separate decision to almost double the outlay for an electronics components scheme to ₹40,000 crore, the government signaled that it wants India to move beyond assembling smartphones and laptops to owning a far larger slice of the semiconductor and electronics value chain.

The 2026–27 Budget marks a pivot from incentives focused mainly on finished products and chip packaging to an attempt at an end‑to‑end ecosystem: from wafers and chip design to passive components, specialty chemicals and capital equipment. It also places India more squarely in a global subsidy race that already includes wide‑ranging chip programs in the United States, the European Union and China.

From assembly to the “guts” of electronics

Over the past decade, India has become a sizable electronics manufacturing base, largely on the back of production‑linked incentive schemes and a surge in smartphone assembly.

Government data show electronics output has increased roughly fivefold in that period, while exports have risen more than sixfold. Smartphone exports crossed ₹2 lakh crore in the last financial year, with iPhone shipments alone estimated at about ₹1.5 lakh crore.

Yet much of the value in those products is still imported in the form of chips, circuit boards, sensors and other components. The new measures seek to change that.

The Electronics Components Manufacturing Scheme (ECMS), launched in April 2025 with an original outlay of ₹22,919 crore, was designed to support the domestic production of passive components and manufacturing equipment used across consumer electronics, automobiles, medical devices and power systems. In her Budget speech, Sitharaman said “investment commitments at double the target” under ECMS had prompted the government to raise its total outlay to ₹40,000 crore.

The scheme covers a wide set of products: resistors, capacitors, inductors, connectors, relays, speakers, oscillators, lenses, camera modules and multilayer printed circuit boards, among others. It also supports the design and manufacture of capital equipment and tooling for electronics production. Active semiconductor devices are handled under the semiconductor mission.

ECMS offers companies a choice of turnover‑linked incentives, capital‑expenditure subsidies or a hybrid model, and requires all beneficiaries to commit to job‑creation targets.

According to official figures, ECMS had received 249 applications by early 2026. Authorities have cleared 46 projects so far, tied to proposed investments of about ₹54,567 crore, projected production of ₹3.68 trillion and more than 50,000 direct jobs over the life of the scheme. The electronics and information technology ministry has said publicly that overall investment commitments under ECMS now exceed ₹1.15 lakh crore, nearly double the initial target of ₹59,350 crore.

One beneficiary, Motherson Electronic Components, has announced plans to invest about ₹1,900 crore in new facilities in Tamil Nadu under the scheme, with the company saying it expects to create more than 5,000 jobs in the state.

The Budget also marks ECMS’s first substantial year of funding, with a provision of roughly ₹1,500 crore in the 2026–27 estimates, up from a negligible allocation when it was launched.

A broader semiconductor mission

If ECMS is meant to deepen the components base, ISM 2.0 is intended to widen and consolidate India’s semiconductor push.

The original India Semiconductor Mission, approved in late 2021, sits atop a ₹76,000‑crore program to support chip and display manufacturing. Under that package, the central government offers up to 50% of project cost for silicon semiconductor fabs and display fabs, and 30% of capital expenditure for compound semiconductors, silicon photonics, sensors and chip assembly, testing and packaging units. A Design Linked Incentive scheme provides to eligible chip design firms reimbursement of up to half their research and development expenses and a percentage of net sales for a limited period.

In the three years since, ISM has cleared a handful of large projects, including a proposed ₹91,000‑crore fab in Gujarat led by Tata Group with Taiwan’s Powerchip Semiconductor Manufacturing Corp. as technology partner, a Tata chip packaging plant in Assam budgeted at about ₹27,000 crore, and a memory assembly and test facility in Sanand, Gujarat, by U.S.-based Micron Technology.

These approvals gave India its first credible steps toward domestic semiconductor manufacturing after multiple unsuccessful attempts stretching back to the early 2000s. But the ecosystem remained thin: almost all fabrication equipment, gases, wafers and advanced design IP still had to be imported.

The second phase of the mission, as outlined in the Budget, is supposed to address those gaps. Alongside the focus on equipment and materials and “full‑stack Indian IP,” Sitharaman said the new mission would emphasise “industry‑led research and training centres.”

Detailed guidelines for ISM 2.0 — including its total funding envelope, eligibility criteria and incentive structures for fabs, fabless chip design firms and upstream suppliers — have not yet been published. Officials have indicated these will be notified within about three months.

Information Technology Minister Ashwini Vaishnaw has suggested in public comments that the overall outlay for the semiconductor mission’s second phase could exceed the original ₹76,000‑crore package once support for equipment, data centres and artificial intelligence infrastructure is counted. That figure has not been approved in any Cabinet note or formal notification, and currently stands as a political signal rather than a budgeted commitment.

The 2026–27 Budget does, however, create a separate line item for semiconductor‑related spending, with an initial provision of about ₹1,000 crore.

A crowded global field

India’s moves come as major economies spend heavily to secure their own chip supplies and reduce reliance on East Asia.

The United States’ 2022 CHIPS and Science Act authorizes roughly $52.7 billion in direct funding for semiconductor manufacturing and research and offers an estimated $24 billion in tax credits for chip investments as part of a broader technology package. The European Union aims to mobilize more than €43 billion under its European Chips Act to double the bloc’s share of global chip production by 2030. China, which has backed semiconductor manufacturing since the mid‑2010s through a series of “Big Fund” vehicles, has launched a third phase reportedly worth about 344 billion yuan, with a stated focus on tools and materials amid tightening export controls.

By comparison, New Delhi’s approved semiconductor and electronics incentives remain smaller in absolute dollar terms. Along with the ₹76,000‑crore semiconductor program and the expanded ECMS outlay, India’s various electronics and allied production‑linked incentive schemes together add up to roughly ₹2.3 lakh crore in promised support. The government argues that lower labor and construction costs and geopolitical interest in “friend‑shoring” away from China can amplify the impact of that money.

In her speech, Sitharaman cast the measures as part of a broader effort to build resilience in “a world where trade and multilateralism are imperilled and access to resources and supply chains are disrupted.”

The Budget also proposes a “rare‑earth corridor” spanning parts of Odisha, Kerala, Andhra Pradesh and Tamil Nadu to support domestic processing of critical minerals used in electronics, electric vehicles and renewable energy, underscoring the link between semiconductor ambitions and resource security.

Big promises, mixed track record

The scale of India’s industrial ambition sits alongside a more cautious reality: large outlays have not always translated quickly into on‑the‑ground capacity.

Across 14 production‑linked incentive programs covering sectors from electronics to advanced batteries and automobiles, the government had disbursed about ₹23,946 crore by September 2025, a fraction of the nearly ₹2 lakh crore originally allocated. Several schemes have been slowed by delays in approvals, evolving guidelines and compliance requirements that firms say have been difficult to meet.

In employment programs, government data show that only a small percentage of budgeted funds for some major skilling schemes were spent in 2025–26, reflecting bottlenecks in program design and implementation.

Semiconductors and electronics manufacturing pose additional challenges. Chip fabrication plants are among the most capital‑intensive industrial projects, typically costing $10 billion to $20 billion and taking three to five years before commercial production begins. They require uninterrupted power, large volumes of clean water and strict environmental controls. Component and materials plants, while smaller, still depend on steady logistics, industrial land and regulatory clarity.

Industry executives and analysts have argued that, beyond subsidies, India will need faster permitting, single‑window approvals with real authority, reliable infrastructure in designated clusters and transparent, time‑bound disbursement of incentives if it is to compete with established hubs in Taiwan, South Korea and China.

High stakes for jobs and regions

If the schemes deliver as projected, they could reshape manufacturing patterns across several Indian states.

Electronics and semiconductor investments are clustering around Sanand and Dholera in Gujarat; Morigaon in Assam, where Tata is setting up the Northeast’s first major chip packaging plant; and existing corridors in Tamil Nadu and Karnataka. Approved ECMS projects alone are expected to create more than 50,000 direct jobs, with policymakers projecting over 100,000 direct jobs over the life of the expanded program.

Officials have also highlighted the potential for more women to enter factory work in components and packaging plants, pointing to female‑dominated assembly lines in other Asian electronics hubs, though the schemes themselves stop short of mandating diversity targets.

Environmental and social impacts are likely to come into sharper focus as projects move from paper to construction. Fabs and materials plants are heavy users of water and electricity and generate complex waste streams, while rare‑earth mining and processing can have significant ecological footprints, particularly in coastal and tribal areas.

For now, those trade‑offs drew little attention in the Budget speech. The emphasis was on what Sitharaman described as the “kartavya,” or duty, of building national capacity in strategic sectors.

The coming years will test whether India can match that rhetoric with execution. The success of ISM 2.0 and the expanded ECMS will not be measured only in budget lines, but in whether fabs, component plants and equipment makers take root — and whether the country’s long‑stated goal of moving from screwdriver assembly to high‑value silicon manufacturing finally materializes.