Summary: With the Union Cabinet’s approval of India Semiconductor Mission 2.0, India has taken a step towards building an integrated semiconductor ecosystem spanning indigenous chip design, domestic manufacturing of chips, semiconductor equipment, machine and materials, research and development and talent development.
Introduction
The Indian Cabinet, on July 15, 2026, approved the India Semiconductor Mission 2.0 (“Semicon 2.0”), the second phase of India’s flagship Semicon India Programme (“Semicon 1.0”), with a budgetary outlay of INR 1,27,500 crore, to accelerate the development of a robust and resilient semiconductor ecosystem in India.
Semicon 2.0 builds on the progress of Semicon 1.0, which focused on creating foundational semiconductor chip manufacturing capacity through semiconductor fabs and ATMP/ OSAT facilities. The new phase adopts a comprehensive approach to strengthen and consolidate the ecosystem by focusing on domestic manufacturing of semiconductor equipment, machines and materials, promoting indigenous chip design and intellectual property ownership, improving global supply chain resilience, advancing research and development and cultivating talent, along with expanding domestic chip manufacturing.
Semicon 2.0: Six Strategic Pillars
Semicon 2.0 is centered around the following six strategic pillars, representing a shift in ambition from chip assembly line to a semiconductor innovation and manufacturing hub:
Design
Semicon 2.0 aims to position India as a chip design IP nation, rather than simply an assembler of foreign-designed chips. It builds on the initial success of Semicon 1.0, wherein 24 semiconductor design projects were approved for financial support through the Design-Linked Incentive Scheme. The government has now identified specific building blocks for developing both strategic (defence and government use) and commercial chip products. All eligible companies including startups and Micro, Small, and Medium Enterprises will get seed money, electronic design automation (EDA) tools support and deployment-linked incentive to offset their higher costs of tape-outs.
Machines and Materials
This pillar seeks to plug the biggest structural gap exposed under Semicon 1.0. India relies on imports for specialty chemicals, ultra-pure gases, and photomasks needed for semiconductor manufacturing. Furthermore, it lacks the capability to manufacture equipment required for use within cleanrooms. To lessen India’s reliance on importing these machines and materials, Semicon 2.0 offers targeted incentives to companies manufacturing and supplying such machines and materials, chemicals and gases essential for semiconductor production in India. The goal is to develop a strong domestic manufacturing base.
Setting up more fabs
Semicon 2.0 aims to add more fabs across silicon, compound semiconductor, discrete component and display categories. Under Semicon 2.0, the CMOS-based silicon fabs will be financially supported with 40% of capex on pari-passu basis and all other fabs will be eligible for 35% of capex on pari-passu.
ATMP/ OSAT Industry
India has seen real commercial traction in ATMP (Assembly, Test, Marking and Packaging) and OSAT (Outsourced Semiconductor Assembly and Test) under Semicon 1.0. A few ATMP/ OSAT facilities have already announced commercial production. Under Semicon 2.0, advanced packaging will receive financial support amounting to 35% of capex on pari-passu and other conventional packaging will be eligible for financial assistance at 25% of capex on a pari-passu basis.
Research and Development
This pillar is dedicated to research on next-generation advanced process nodes (2nm/ 3nm), aiming to enhance India’s technical capabilities beyond the mature 28-65nm range currently being targeted by projects such as Tata’s Dholera fab facility.
Talent Development
As per news reports, India currently faces a shortage of nearly three lakh semiconductor professionals. Semicon 2.0 aims to deepen training while students are still in college, and to actively involve industry in training people on cleanroom operations, fab construction, and other hands-on ecosystem skills—addressing the well-documented gap between engineering graduates and semiconductor-specific expertise professionals.
The Government intends to provide sustained investment in research and development and talent development, allocating INR 1,000 crore for industry-led research and training centres for FY 2026-27.
Key considerations for investment under Semicon 2.0
- While the Government has outlined Semicon 2.0, the operational guidelines under it are awaited, which will be critical in determining the scope, eligibility criteria and implementation framework for the proposed incentives and benefits. Under Semicon 1.0, various states offered benefits such as additional capital subsidy, land at concessional rates, power subsidies, water supply support, stamp duty/ tax exemptions, etc., for setting up fab and ATMP/ OSAT facilities. It will be interesting to see the additional incentives and benefits that states will announce pursuant to Semicon 2.0.
- Foreign direct investment in the semiconductor sector is generally permitted under the automatic route (i.e. without any prior government approval), except for defence sector related activities. However, investments from countries sharing land-borders with India or where the beneficial owner of the investing entity is situated in or is a citizen of such countries (and holds 10% or more equity interest), will require prior government approval.
- Given the capital-intensive nature of semiconductor projects, investors must carefully assess the optimal investment structure, whether through wholly-owned subsidiaries, joint ventures or other strategic vehicles. The chosen structure can have significant implications for governance, technology control, funding obligations, exit rights and compliance with Indian laws.
- As we have witnessed, setting up a semiconductor fab/ ATMP/ OSAT facility in India will require a highly specialised engineering, procurement, and construction (“EPC”) contractor, given the complexity of cleanrooms, ultra-pure water systems, and precision in equipment installation. The project company will have to enter into a contract with an EPC contractor with well-defined roles, timelines and performance metrics, while ensuring compliance with industrial safety, labour laws, and environmental standards.
- Existing and prospective participants must also align or revisit their intellectual property and technology licensing, royalty and transfer arrangements with the vision of Semicon 2.0.
- Tax planning and transfer pricing obligations must also be evaluated at the structuring stage to ensure tax efficiency.
Concluding Remarks
Semicon 2.0 marks a timely and significant step in India’s efforts to become self-reliant in indigenous chip production and emerge as a global hub for semiconductor design, manufacturing and innovation. Although India accounts for nearly 20% of global microprocessor consumption, it continues to rely heavily on foreign IP and imports to meet its semiconductor requirements. Semicon 2.0 is also strategically important, considering rising geopolitical tensions and concentration of semiconductor manufacturing in a handful of jurisdictions.
As the operational guidelines take shape, it will be essential for stakeholders to engage early and proactively—both with the regulatory framework as it evolves and with experienced advisers capable of structuring investments that are not only incentive-optimised, but legally resilient. India’s semiconductor moment is here; the question is whether industry and government together can translate policy ambition into durable, globally competitive capacity.