India Semiconductor Mission 2.0: Union Budget 2026-27 launch with INR 1,000 crore FY26-27 BE provision and ~INR 1-1.2 lakh crore proposed total outlay

Mechanism

ISM 2.0 is the second-phase iteration of the Semicon India Programme, announced in the Union Budget on 1 Feb 2026 by Finance Minister Sitharaman with operational delivery routed through the India Semiconductor Mission under MeitY. The Budget instrument is two-pronged:

• ISM 2.0 fresh outlay — INR 1,000 crore initial provision in the

FY 2026-27 BE; total mission outlay being finalised at approximately INR 1-1.2 lakh crore (~USD 12-14bn) per Minister Vaishnaw's public remarks. Cabinet approval pending; formal launch expected mid-2026.

• Modified Programme for Development of Semiconductor and Display

Manufacturing Ecosystem — INR 8,000 crore allocated for FY 2026-27, continuing ISM 1.0's fab/ATMP capex-subsidy track.

• ECMS uplift — Electronics Components Manufacturing Scheme outlay

raised from INR 22,919 crore to INR 40,000 crore, the components-side complement to ISM 2.0 on the upstream side of the semiconductor value chain.

The four strategic priorities in ISM 2.0 distinct from ISM 1.0:

1. Equipment, chemicals, gases and materials — lithography tools, photoresists, ultra-pure silicon, photomasks, specialty gases. Targets the upstream supply chain currently dominated by AMAT/LRCX/KLAC/ASML (US, NL, JP) and Japanese specialty-chemicals incumbents. 2. Full-stack Indian semiconductor IP — RISC-V ecosystem, AI accelerator IP, chip-design IP cores. Frames the Vaishnaw "India's own Qualcomm/AMD" objective. 3. Industry-led R&D and training centres — closing the talent gap identified as the binding constraint on ISM 1.0 fab build-out. 4. Domestic and global supply-chain integration — explicit QUAD-partner integration framing (US, JP, AU bilateral chip-supply agreements).

Downstream implications

• ISM 1.0 to ISM 2.0 transition — ISM 1.0 (INR 76,000 crore, 2021)

by Dec 2025 had cleared 10 projects across 6 states with INR 1.6 lakh crore committed private investment. ISM 2.0 widens the scope from fab/ATMP capex (ISM 1.0) to upstream equipment, materials, IP, and R&D — the layers ISM 1.0 left untouched.

• ECMS complementarity — the parallel ECMS outlay raise to

INR 40,000 crore creates a coherent components + chip stack: ECMS covers passive components, sub-assemblies, and electronics inputs; ISM 2.0 covers semiconductor wafers, packaging, equipment, and IP.

• Trilateral chip-equipment perimeter exposure — ISM 2.0's

equipment/materials priority places India directly into the AMAT/LRCX/ KLAC/ASML/TEL competitive frame. India is not a perimeter participant (no equivalent of US BIS/JP METI/NL ASML controls) so import access is unconstrained, but indigenous-equipment ambitions bring competitive rather than complementary tension to global incumbents over a 5-10 year horizon.

• Quantitative targets — government targets 70-75% domestic chip

self-sufficiency by 2029-2030 and 3nm/2nm capability by 2035. These are ambitious vs ISM 1.0's 28nm-and-above fab cohort.

• Western industrial-policy stack — a fourth-generation entry in the

India PLI/ISM lineage and the latest large-tranche commitment in the global $1T+ industrial-policy stack against China supply-chain concentration. Strengthens the case for Indian equity exposure (INDA, SMIN) on a multi-year horizon, particularly in companies with semiconductor-adjacent capex (Tata Electronics group).

Open questions

• Cabinet approval timing for the full INR 1-1.2 lakh crore outlay —

Sentinel and Communications Today coverage suggests May 2026 launch but no firm date confirmed.

• Whether ISM 2.0 will allow majority-foreign-owned applicants (ISM 1.0

did, e.g., Micron Sanand) or pivot toward domestic-controlled JVs in line with the "full-stack Indian IP" framing.

• Bilateral integration mechanics — whether ISM 2.0 incentives will be

conditional on QUAD-partner offtake/supply agreements (parallel to the US CHIPS Act guardrails).

• ECMS-ISM 2.0 boundary on overlapping advanced-packaging applications

(e.g., substrates, advanced-package materials).