India Semiconductor Mission 2.0 Explained: Why The Government Is Asking Chipmakers To Put More Skin In The Game

The Union Cabinet on Wednesday approved the second phase of the India Semiconductor Mission (ISM 2.0) with an outlay of ₹1.27 lakh crore, signalling a shift in how New Delhi plans to support chip manufacturing.

Announcing the decision, Union IT Minister Ashwini Vaishnaw said the Cabinet had approved ISM 2.0 with a total allocation of ₹1.27 lakh crore. The programme builds on the semiconductor initiative launched in 2021 to reduce import dependence and attract investment in an industry increasingly viewed as critical for economic and national security.

What has changed under India Semiconductor Mission 2.0?

The key change is that the government wants semiconductor companies to invest more of their own capital instead of relying heavily on public subsidies. While the Centre is expected to continue supporting fabrication plants and semiconductor packaging facilities, investors will need to demonstrate stronger financial commitment and clearer technology partnerships.

Why won't the Centre fund technology transfer?

Under the proposed framework, the Centre does not want to subsidise the cost of acquiring semiconductor manufacturing technology from foreign partners. Technology transfer includes licensing fees, intellectual property arrangements and access to proprietary production processes.

The government's position is that such costs are part of a company's business strategy and should be financed by private investors. Public money, according to experts, should be used for building manufacturing capacity and related infrastructure rather than paying for commercial technology deals.

Why are states being asked to shoulder land costs?

Another major shift is the greater role assigned to state governments. States are expected to provide land and local infrastructure support for semiconductor projects rather than seeking reimbursement from the Centre.

This is intended to reduce the Union government's financial burden and encourage competition among states to attract semiconductor investments through industrial parks, power supply, water infrastructure and faster clearances. Gujarat, Tamil Nadu and Karnataka have already positioned themselves as leading contenders for future semiconductor projects.

How is ISM 2.0 different from the first semiconductor scheme?

The original India Semiconductor Mission was designed to create an ecosystem almost from scratch. It offered generous fiscal incentives to attract global and domestic players. Since then, projects involving Tata Electronics, Micron Technology and CG Power have received approvals, with Tata accounting for a significant share of announced investments.

ISM 2.0 represents a more selective phase. Instead of maximising the number of proposals, the government appears focused on supporting projects with stronger technology access, execution capability and financial resilience.

Will stricter subsidy rules discourage investors?

Higher investment requirements may make it harder for smaller firms to participate. Companies will need to absorb technology licensing costs and commit more capital upfront.

However, policymakers argue that credible semiconductor manufacturers evaluate factors such as market access, skilled talent, infrastructure and supply-chain reliability alongside subsidies. A more disciplined incentive framework, they believe, could improve the quality of investments even if the number of applicants falls.

Can India still become a global semiconductor hub?

The government is betting that the answer is yes. Global chip supply chains are diversifying beyond East Asia, and many countries are seeking trusted manufacturing locations. India combines a large electronics market, a growing semiconductor design base and government support for advanced manufacturing.

The challenge for ISM 2.0 will be balancing fiscal discipline with investor confidence. If the revised framework succeeds in attracting technologically capable companies while reducing dependence on subsidies, it could mark India's transition from an aspiring semiconductor destination to a more credible manufacturing player in the global chip industry.