Presenting the Union Budget 2026-27, finance minister Nirmala Sitharaman announced that ISM 2.0 will be launched “to produce equipment and materials, design fullstack Indian IP, and fortify supply chains”
With an uncertain geopolitical environment, the need for self-reliance across critical segments has never been greater. Through ISM 2.0, policymakers want to address this gap
Industry stakeholders told Inc42 that ISM 2.0, while holding onto India’s design and assembly strength, should promote the manufacturing of equipment
Over four years after the India Semiconductor Mission (ISM) was announced with an outlay of INR 76,000 Cr – India’s largest policy bet on semiconductors, the country is now ready to take its next step to strengthen its presence in the critical segment. Presenting the Union Budget 2026-27, finance minister Nirmala Sitharaman announced that ISM 2.0 will be launched “to produce equipment and materials, design fullstack Indian IP, and fortify supply chains”.
While there is no doubt that the Centre’s vision to move beyond assembly and packaging to IP and equipment is noble and the obvious next step, the question is if India’s semiconductor ecosystem is ready to take on that leap.
As per Inc42’s ‘Annual Indian Startup Trends Report, 2025’, Indian semiconductor startups raised about $50 Mn in 2025. In 2024, this amount was $28 Mn+ and a mere $5 Mn+ in 2023.
While capital inflows are clearly rising, the industry believes that there’s uncertainty around which segments of the semiconductor value chain should be the priority focus. Besides, nascent startups in the segment need long-term support so that they can become commercial viable entities.
India has already established a strong presence in the design and assembly segments. Last week, electronics and IT minister Ashwini Vaishnaw interacted with semiconductor chip design companies selected under the Design Linked Incentive (DLI) scheme of the Semicon India Programme.
The DLI scheme currently supports 24 startups, with a target of enabling at least 50 fabless semiconductor companies in the country in the next phase.
The State Of Indian Semiconductor Ecosystem
India has largely focused its semiconductor push on design and assembly, while not yet taking on large-scale wafer fabrication. With ISM 2.0, the government wants to take the ecosystem further by focusing on the missing links in the semiconductor value chain, like RF IPs, analog IPs, compute IPs, and more, Muktamath said.
“From design to manufacturing you build your own IP and at the same time it’s not just the IP selling, it’s the system-on-chip (SOC) selling or the chips selling. That’s the complete stack the finance minister was referring to,” he added.
While penetrating the fabless semiconductor market was the stepping stone, the bigger long-term aim is manufacturing. The Centre envisions enabling domestic manufacturing of advanced chips, with a target of reaching 3 nm chip production by 2032.
It is pertinent to mention that Tata Electronics’ upcoming semiconductor fabrication plant in Dholera will aid Indian semiconductor startups build prototype chips. A key focus will also be on field testing, allowing potential customers to run real-world applications on the chip. However, this is still some time away.
With an uncertain geopolitical environment, the need for self-reliance across critical segments has never been greater. Through ISM 2.0, policymakers want to address this.
Industry stakeholders told Inc42 that ISM 2.0, while holding onto India’s design and assembly strength, should promote the manufacturing of equipment, chemicals, and materials required for assembly and semiconductor fabs.
Besides, India is far behind when it comes to electronic design automation (EDA). Currently, 70% of the EDA market rests with three US-based companies – Synopsys, Cadence,and Siemens EDA.
For context, EDA tools are used to design, simulate, verify, and test electronic circuits and chips before they are manufactured.
The second phase of the semiconductor mission needs to push homegrown EDA services to reduce dependence on foreign companies.
Fixing The Semiconductor Ecosystem’s Pain Points
Besides, industry players want the Centre to address the problems identified in the first phase of ISM, with the foremost one being availability of capital.
“Patient capital is required for semiconductor fab. In the second phase of ISM 2.0, many DLI companies will grow and require huge capital. Until this point, we were doing a proof of concept. Now, we are looking at a prototyping level, where there is a capital requirement,” Muktamath said.
To address this, Artha’s Damani suggested that the government offer support to Indian funds investing in late-stage rounds of semiconductor companies.
Referring to US’ CHIPS and Science Act – under which the American government channels capital infusion in domestic fab companies through private vehicles, caps its returns, and passes the upside to private investors – Damani said, “Some unfair advantage has to be given to people who are taking risks. The government should support the investors willing to take that leap of faith.”
Damani also highlighted structural issues with ISM 1.0. As per the current rules, DPIIT startups lose their “startup” status after 10 years of incorporation or if their annual turnover exceeds INR 100 Cr in any fiscal year. However, semiconductors startups require 10+ years to even reach commercial maturity, he added.
Damani also called on the government to become the first buyer for semiconductor companies, as is the case for defence companies. He said many startups are working on new technologies and investors are hesitant to take a bet on them. This issue can be addressed if the government steps in as a buyer.
