India's ₹1.25 Lakh Cr Semiconductor 2.0 Shifts Focus From Fab Subsidies to Equipment Supply Chains

₹1.25 lakh crore — that’s the outlay the Finance Ministry’s expenditure finance committee just cleared for India Semiconductor Mission 2.0, a 64% jump over the ₹76,000 Cr allocated in phase one. The proposal now heads to the Union cabinet for final sign-off.

Why the hard pivot past fab subsidies

ISM 1.0 was about luring assembly and testing plants: 12 projects approved, cumulative investments of ₹1.64 lakh Cr across the ecosystem. 23 chip tapeouts completed across advanced nodes. 105 companies got access to design tools. But the government spotted a weak link — India was still importing almost all the equipment, gases, and chemicals those fabs need.

ISM 2.0 flips the script. The flagship 50% capex subsidy for ATMP and OSAT facilities is likely getting trimmed. In its place: support for domestic production of chipmaking equipment, specialty chemicals, industrial gases, and raw materials. The goal is to build a local supply chain that doesn't evaporate when geopolitical winds shift.

Design gets a market-facing incentive

Instead of blanket subsidies, the next phase ties design-linked incentives to the capital companies raise from the market. That forces startups to prove viability before getting government backing. Minister Ashwini Vaishnaw explicitly called for helping Indian semiconductor design houses scale, training talent through universities, and creating industry-led research centres.

Industry stakeholders are pressing for more: patient capital, support for indigenous EDA tools, and — crucially — the government becoming an early customer for domestic chip technologies. Without that demand-side pull, young companies struggle to get first silicon to market.

What this enables next

If ISM 2.0 delivers on equipment and materials localization, India reduces its exposure to the same supply chain fragilities that drove the global chip shortage. 24 design projects already underway under the DLI scheme. The next bet is on homegrown chipmaking tools and chemistry — a harder, slower win than assembly subsidies, but the one that actually builds sovereign capability.

Source: Finance Ministry Approves ₹1.25 Lakh Cr Outlay For Semiconductor Mission 2.0
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