September 9, 2025: The Indian government is moving quickly to roll out the next phase of the India Semiconductor Mission (ISM 2.0), with a cabinet note expected to be presented by the end of October 2025. Industry insiders have indicated that the government aims to double the financial support to approximately $20 billion (Rs 1.76 lakh crore) to attract investment and accelerate the development of the semiconductor industry in India.
ISM 2.0 will expand on the original scheme by supporting a broader spectrum of the semiconductor value chain, including compound semiconductor fabrication, advanced packaging, display fabs, capital equipment manufacturing, and specialized suppliers like chemicals and gases. This expansion aims to position India as a competitive player in the global semiconductor market, addressing critical sectors such as 5G, automotive electronics, and renewable energy.
While the final budget has yet to be finalized, discussions are leaning toward an increase from the initial $10 billion allocated under ISM 1.0, which has now nearly been exhausted. Given the rupee depreciation against the dollar and rising global demand for semiconductor components, the additional funding is seen as essential to match the scale of investment needed to compete globally.
Industry representatives have also suggested that the government should target a portion of the funds for fabless semiconductor companies, which focus on the design and development of semiconductor chips rather than manufacturing them. This shift in focus is expected to open new avenues for startups involved in semiconductor design, an area that India has been increasingly investing in.
Government Focus on Advanced Packaging and Supply Chain Development
ISM 2.0 will prioritize advanced packaging, a critical technology for improving the performance and reducing the size of semiconductor devices. Advanced packaging has become increasingly important in sectors such as smartphones, automotive electronics, and Internet of Things (IoT). With significant global interest in these technologies, India’s policy revision aims to create an environment conducive to the growth of local expertise in this field.
Additionally, compound semiconductors are also set to receive support under the new initiative. These semiconductors, made from materials like gallium nitride (GaN) and silicon carbide (SiC), are crucial for high-efficiency power electronics, electric vehicles, and 5G infrastructure. This move aligns with India’s long-term strategy to build a diversified and self-sustaining semiconductor industry.
A portion of the budget will also be dedicated to establishing a local supply chain for semiconductor materials, chemicals, and gases. This is expected to reduce dependency on imports and help Indian startups develop cost-effective solutions for the semiconductor sector.
Government’s ISM 2.0 Goal: Strengthening Local Manufacturing and Global Competitiveness
As of now, ISM 1.0 has approved 10 major projects, including wafer fabrication units and semiconductor assembly and testing facilities. However, the government’s Rs 65,000 crore outlay under ISM 1.0 is nearly exhausted, which is why ISM 2.0 is being positioned as a crucial next step to sustain momentum in the industry.
The government’s new push is not only about increasing funding but also about ensuring that projects under ISM 2.0 contribute to building a robust local supply chain. This could help semiconductor manufacturers and related industries become more cost-competitive and self-reliant. Startups and small and medium enterprises (SMEs) will also benefit from targeted incentives designed to encourage local innovation and help India become a key player in the global semiconductor industry.
The drafting of ISM 2.0 is in its final stages, with industry consultations and inputs from stakeholders continuing. Officials expect that once the cabinet note is tabled, the Union Cabinet will give its approval by the end of the year. Once approved, applications for funding are expected to open in early 2026.
ISM 2.0’s broader approach will likely fuel the growth of a diverse range of startups, from semiconductor manufacturing units to design companies and advanced packaging solutions. By strengthening its semiconductor capabilities, India aims to increase its role in the global supply chain, improving both technological capacity and economic competitiveness.
