The Indian government plans to fast-track the approval of the next iteration of the India Semiconductor Mission (ISM 2.0), with a cabinet note expected to be tabled by the end of October, according to government officials and industry executives. The new mission will significantly broaden the scheme's support to include compound semiconductor fabs, advanced packaging, display fabs, capital equipment manufacturing, specialized chemicals and gas suppliers, and fabless design companies, covering the entire semiconductor value chain.

Industry Seeks Doubled Financial Outlay

The industry has requested the government to double the financial outlay for the next iteration to USD 20 billion (about INR 1.76 lakh crore) to attract more projects. However, the outlay has not been finalized yet, with the government expected to undertake further stakeholder consultations to measure industry interest. Government officials indicated that, although the outlay has not been finalized, it is likely to exceed the previous outlay to match the USD 10 billion figure under ISM 1.0, as the rupee has further depreciated against the dollar.

"The industry has sought substantially higher financial support, almost double the outlay compared to the previous scheme," an executive present in recent discussions told ET.

Feedback from Semicon 2025 Shapes New Mission

Prime Minister Narendra Modi chaired a roundtable discussion with global semiconductor industry executives at the recently concluded Semicon 2025, where the industry provided feedback on ongoing projects and offered input for the next iteration. "The government has committed to fast-tracking the approval for the ISM 2.0 scheme during the recent roundtable," the executive noted.

Due to the broader scope, the incentives under the scheme will vary for each category, with the highest subsidies reserved for those setting up fabrication units for silicon wafers, while compound semiconductor units, which are relatively less capital-intensive, will receive lesser subsidies, officials said. A portion of the outlay will also be earmarked for fabless semiconductor designs and MSMEs, officials added.

Timeline and Implementation

"The scheme is in its final stages of being drafted, and a cabinet note is expected to go to the union cabinet for approval by the end of October, with applications expected by the end of the year," a government official told ET, asking not to be named. The government has approved 10 major projects under ISM 1.0, nearly exhausting its INR 65,000 crore outlay.

ISM 1.0 extended fiscal support of a flat 50% of the project cost to companies establishing semiconductor wafer fabrication units, display fabrication units, compound semiconductor manufacturing units, and outsourced semiconductor assembly and test (OSAT) and ATMP packaging units.

Local Supply Chain Development

Industry executives said projects approved under ISM 1.0 will now aim to establish a local supply chain to procure materials, chemicals, and gases locally, in an effort to compete in global markets. "We are trying to bring our overseas suppliers for the necessary materials like chemicals and gases to India. The goal is to have local suppliers who can provide quick support, which is crucial for reacting to customer demand and reducing long turnaround times," an executive in charge of procurement and supply chain for a semiconductor manufacturer told ET on condition of anonymity.

The executive added that the industry is rallying various assembly, testing, marking, and packaging (ATMP) companies to set up a base and create economies of scale and a unified business case to present to the government. Atul Lall, managing director of Dixon Technologies, explained the industry's perspective: "We are looking at what the ISM 2.0 structure and contours are going to be. The government has indicated certain things.

They have talked about design, fabless, and supporting MSMEs. They have also talked about helping the equipment manufacturers, tool makers, materials, chemicals, and gas suppliers." The contract manufacturer has plans to set up a display fabrication unit for LED panels, which will eventually move to more advanced OLED displays. The project is currently in a premature stage, with Dixon yet to identify a technology partner.

This indicates that the fab will require an investment of upwards of USD 3 billion to set up, which can be subsidized under ISM 2.0 if approved.

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