INDIA SEMICONDUCTOR MISSION 2.0
1. Context
The Union Cabinet recently approved the second iteration of India’s ambitious Semiconductor Mission, with an outlay of Rs Rs 1.27 lakh crore. The fresh scheme will carry a key focus on subsidising the supply chain around chip manufacturing to attract companies producing commodities like gases, and chemicals used in the production process. The duration of the scheme is six years.
2. India Semiconductor Mission 2.0
- Under India Semiconductor Mission (ISM) 2.0, the government has expanded the range of incentives while reducing its financial contribution for well-established segments of the semiconductor ecosystem. It has also revamped the Design Linked Incentive (DLI) scheme to encourage greater participation from large corporations and private investors.
- According to S. Krishnan, Secretary of the Ministry of Electronics and Information Technology (MeitY), these changes are intended to strengthen private-sector investment and enhance the industry's long-term sustainability.
- In comparison with the original India Semiconductor Mission (ISM), the second phase introduces a revised incentive framework with lower government support for manufacturing projects. Under the earlier scheme, semiconductor fabrication units and assembly facilities were eligible for a uniform capital expenditure (capex) subsidy of 50%.
- Under ISM 2.0, the subsidy structure has been differentiated according to the type of facility. Silicon fabrication plants are eligible for a 40% government subsidy, while other fabrication units can receive 35% support.
- Likewise, advanced semiconductor packaging projects qualify for a 35% incentive, whereas conventional packaging facilities are eligible for 25% assistance. In addition to manufacturing incentives, the new mission also provides financial support for research and development (R&D) and skill and talent development to strengthen India's semiconductor ecosystem.
- During the initial phase of the India Semiconductor Mission, the government's primary emphasis was on establishing core semiconductor manufacturing infrastructure.
- This included support for a semiconductor fabrication facility being developed by the Tata Group, along with assembly, testing, marking, and packaging (ATMP) units by companies such as Micron Technology, Tata Group, CG Power, and Kaynes Semicon, among others, laying the foundation for India's domestic semiconductor manufacturing capabilities
3. Why is India Semiconductor Mission (ISM) 2.0 Significant for India?
- The launch of India Semiconductor Mission (ISM) 2.0 represents a major strategic initiative aimed at integrating India more deeply into the global semiconductor value chain.
- By strengthening domestic chip manufacturing and packaging capabilities, the mission seeks to increase value addition within India's rapidly growing electronics industry while reducing dependence on foreign suppliers.
- Semiconductors have emerged as one of the world's most strategically important technologies, powering products ranging from household appliances and smartphones to advanced defence systems and aerospace equipment.
- In an era marked by supply chain disruptions and geopolitical competition, securing semiconductor capabilities has become a national priority for many countries, including India.
- According to Ashok Chandak, President of the India Electronics and Semiconductor Association (IESA), the next phase of the mission is designed to transform India from merely participating in the semiconductor industry to becoming a key structural player in the global ecosystem.
- The country's vision now extends beyond chip fabrication to developing strengths in semiconductor design, electronic design automation (EDA) tools, materials, manufacturing equipment, and other upstream components that are essential for technological self-reliance and sustained global competitiveness.
- India has set ambitious long-term goals for its semiconductor sector. By 2029, the country aims to acquire the capability to design and manufacture semiconductor chips that can meet nearly 70–75% of domestic demand.
- Looking further ahead, by 2035, India aspires to establish itself among the world's leading semiconductor nations, supported by a robust manufacturing ecosystem, advanced research capabilities, and a highly skilled workforce.
4. How is India Semiconductor Mission (ISM) 2.0 Different from ISM 1.0?
- Introduced in 2021, the India Semiconductor Mission (ISM) 1.0 was designed as a government-led programme to establish a comprehensive semiconductor ecosystem covering chip fabrication, assembly, testing, packaging, semiconductor design, and display manufacturing. Since its launch, the initiative has attracted cumulative investment commitments of nearly ₹1.64 lakh crore.
- As part of ISM 1.0, the Central Government approved 12 semiconductor projects, including Assembly, Testing, Marking, and Packaging (ATMP/OSAT) facilities by companies such as Micron Technology, along with a semiconductor fabrication plant being developed by Tata Electronics in collaboration with Taiwan’s Powerchip Semiconductor Manufacturing Corporation (PSMC).
- Several projects sanctioned under the first phase have already become operational. Manufacturing facilities established by Micron Technology, Kaynes Semicon, and CG Semi have commenced commercial production, while the Tata semiconductor fabrication unit is still under construction. Chips manufactured at these facilities are also being supplied to international markets through exports.
- While ISM 1.0 primarily concentrated on building semiconductor manufacturing infrastructure, the government subsequently recognised the need to strengthen the broader semiconductor ecosystem and review the existing incentive structure, including the 50% project-cost subsidy available for chip packaging units.
- Reflecting this broader vision, Finance Minister Nirmala Sitharaman, in the Union Budget 2026–27, announced India Semiconductor Mission (ISM) 2.0, with an expanded focus on semiconductor equipment, materials, indigenous intellectual property (IP), and resilient supply chains.
- Unlike its predecessor, ISM 2.0 extends government support well beyond fabrication facilities. The revised mission includes incentives for semiconductor manufacturing equipment, specialty materials, chemicals, design software and tools, research and development (R&D), workforce development, and supply-chain resilience.
- This represents a transition from a manufacturing-centric model to a holistic value-chain approach covering every stage of the semiconductor ecosystem.
- Another major feature of ISM 2.0 is the government's willingness to provide not only financial grants but also equity participation in eligible large enterprises and start-ups operating in strategic areas such as semiconductor design and advanced technologies.
- The level of government support will be determined partly by a company's capacity to attract private investment and mobilise additional capital.
- Enterprises investing in the production of semiconductor manufacturing equipment, specialty chemicals, and industrial gases essential for chip fabrication can receive Central Government incentives of up to 30% of the total project cost under the new mission.
- To encourage technological innovation, ISM 2.0 provides substantial support for research and development activities. Eligible R&D projects focused on advanced semiconductor technologies may receive financial assistance covering up to 75% of project costs, through combined contributions from the Central and State Governments.
- Comparable incentives have also been proposed for initiatives aimed at developing a highly skilled semiconductor workforce.
- The Research-Linked Incentive (RLI) component of ISM 2.0 places special emphasis on developing 7-nanometre semiconductor technology, reflecting India's aspiration to move into advanced chip manufacturing.
- In contrast, the semiconductor fabrication plant currently being built by Tata Electronics is expected to manufacture 28-nanometre chips, which continue to have strong commercial demand across industries but are considered a mature technology rather than the latest generation of semiconductor manufacturing.
5. Global Semiconductor Supply Chain – A Highly Concentrated Ecosystem
- The global semiconductor industry is characterised by a highly concentrated supply chain, with a limited number of countries and companies controlling critical stages of chip production.
- Taiwan and South Korea together contribute nearly 80% of the world's advanced semiconductor foundry capacity. In addition, ASML, headquartered in the Netherlands, is the only company that manufactures Extreme Ultraviolet (EUV) lithography machines, the indispensable equipment required to produce the most sophisticated semiconductor chips.
- The semiconductor manufacturing process depends on a complex network of specialised raw materials and components sourced from countries such as Japan, Germany, the United States, and China.
- Essential inputs include silicon wafers, specialty gases, and high-purity chemicals. At the design stage, Arm, a UK-based semiconductor architecture company in which Nvidia holds a stake, supplies processor architectures that power a vast range of electronic devices, including smartphones, personal computers, and gaming systems.
- As a result, the global semiconductor industry functions as an interconnected and highly specialised ecosystem with substantial technological, financial, and intellectual property barriers to entry.
- The global market for semiconductor chip design is largely dominated by leading United States-based companies, including Nvidia, Qualcomm, and AMD. Among these firms, Nvidia has established itself as the market leader in high-performance Graphics Processing Units (GPUs).
- While initially recognised for its dominance in the gaming industry, the company has expanded its influence into areas such as cryptocurrency mining, data centres, high-performance computing, and artificial intelligence (AI), making it one of the most significant players in the global semiconductor ecosystem.
6. Why Does the Semiconductor Supply Chain Matter?
- The semiconductor supply chain has become a strategic asset because semiconductor chips serve as the foundation of modern technology. They are indispensable for a wide range of applications, including smartphones, artificial intelligence (AI), electric vehicles (EVs), medical equipment, satellites, telecommunications networks, industrial automation, and advanced defence systems.
- A significant share of global advanced semiconductor manufacturing is concentrated in Taiwan, making the international supply chain highly vulnerable to disruptions. Any escalation of geopolitical tensions, particularly across the Taiwan Strait, could interrupt chip production and trigger widespread shortages, affecting industries and economies worldwide.
- The semiconductor ecosystem is increasingly viewed as a pillar of economic and technological security. Consequently, many countries are investing heavily in developing domestic semiconductor manufacturing, design, and supply-chain capabilities to reduce reliance on foreign suppliers, improve self-sufficiency, and build resilient supply networks against future disruptions.
- The global race for semiconductor leadership has intensified as advanced chip technologies become central to innovation and national power.
- A country's ability to develop and control cutting-edge semiconductor technologies is now closely associated with its competitiveness in artificial intelligence (AI), quantum computing, advanced manufacturing, next-generation communications, and national defence, making semiconductors a key driver of economic growth and strategic influence
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For Prelims: Semiconductor, Transistors, Fabrication Technology
For Mains:
1. Discuss the recent global chip shortage and its implications for India's semiconductor industry. What steps has India taken to enhance its domestic chip manufacturing capabilities? (250 Words)
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Previous Year Questions
1. Which of the following fabrication techniques is ideally suited for digital ICs?
(KVS TGT WET 2017)
A. Monolithic B. Thin film C. Hybrid D. Thin film and hybrid
Answer: A
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Source: Indianexpress
