A holistic semicon push

Source: The post “A holistic semicon push” has been created, based on “A holistic semicon push” published in “BusinessLine” on  28th February 2026.

UPSC Syllabus: GS Paper-3-Science and technology

Context: Semiconductors form the foundation of the digital economy by enabling telecommunications, artificial intelligence, defence systems, electric mobility, and renewable energy technologies. In the backdrop of geopolitical tensions and pandemic-induced supply chain disruptions, strategic control over semiconductor supply chains has become a national priority. In this context, Budget 2026–27 introduced India Semiconductor Mission (ISM) 2.0 along with an expanded Electronics Components Manufacturing Scheme (ECMS), signalling a transition towards a comprehensive semiconductor ecosystem.

Background: ISM 1.0 and Its Limitations

1. The first phase of the India Semiconductor Mission was approved in December 2021 with an outlay of ₹76,000 crore.
2. It primarily focused on developing domestic fabrication and packaging capacity.
3. It successfully attracted anchor investments such as Tata Electronics’ fabrication facility in Gujarat, Micron’s ATMP unit at Sanand, and CG Power’s OSAT operations.
4. The regulatory framework relied largely on upfront capital subsidies and State-level fiscal and infrastructure incentives to reduce entry barriers in a capital-intensive and high-risk sector.
5. However, ISM 1.0 remained concentrated on downstream manufacturing outcomes. Upstream segments such as fabrication equipment, specialty materials, advanced wafers, and design infrastructure received limited attention.
6. As a result, India’s semiconductor manufacturing ecosystem continued to depend significantly on imports and foreign technology.

Objectives and Focus Areas of ISM 2.0

ISM 2.0 seeks to correct these structural gaps through an integrated policy approach.

1.  Domestic Production of Equipment and Materials
   1. ISM 2.0 prioritises the domestic manufacturing of fabrication equipment, specialty chemicals, gases, advanced wafers, precision machinery, and advanced packaging services.
   2. The expanded ECMS with an outlay of ₹40,000 crore plays a central role in strengthening component and material manufacturing.
2. Development of Full-Stack Indian Intellectual Property
   1. The mission aims to move beyond fabrication capacity and promote indigenous chip design and full-stack intellectual property development.
   2. This approach seeks to embed manufacturing within a broader innovation ecosystem.
3. Creation of Industry-Led Research and Training Infrastructure
   1. The policy emphasises the establishment of research centres and skilling hubs to build a specialised semiconductor workforce.
   2. This marks a shift towards non-fiscal regulatory instruments that focus on human capital development and institutional capacity building.

Policy Instruments under ISM 2.0

1. The government has adopted a mix of fiscal and non-fiscal tools. Concessional customs duty regimes have continued to reduce cost pressures.
2. The absence of sector-specific levies improves investment attractiveness. Cluster-based development models are being promoted to ensure coordinated infrastructure development and supply chain integration.
3. Additionally, greater emphasis on research, skilling, and supplier development enhances long-term sustainability.

Significance of ISM 2.0

1. Strategic Significance: ISM 2.0 enhances India’s strategic autonomy by reducing dependence on foreign semiconductor supply chains. It strengthens national security in critical sectors such as defence and telecommunications.
2. Economic Significance: The mission has the potential to generate high-value employment and deepen the electronics manufacturing ecosystem. It can improve India’s export competitiveness in advanced technology sectors.
3. Technological Significance: By focusing on indigenous intellectual property and research capacity, ISM 2.0 promotes innovation and reduces technological dependence on foreign firms.
4. Supply Chain Resilience: The emphasis on upstream segments such as equipment and materials enhances supply chain resilience and reduces vulnerability to global disruptions.

Challenges

1. High Capital Intensity and Long Gestation Periods: Semiconductor fabrication requires extremely high capital investment and involves long payback periods, which can deter private participation despite subsidies.
2. Technological Complexity: The semiconductor industry evolves rapidly, and catching up with established global leaders requires continuous technological upgrades and sustained innovation.
3. Dependence on Global Supply Chains: Despite policy support, India may continue to rely on imported equipment, raw materials, and foreign technology in the short to medium term.
4. Skill Gaps: The domestic workforce may face shortages of highly specialised engineers and technicians required for advanced semiconductor manufacturing and design.
5. Global Competition: Countries such as the United States, Taiwan, South Korea, and China are offering aggressive incentives, making global competition intense.

Way Forward

1. Deepening Upstream Integration: India must accelerate domestic production of semiconductor-grade materials and fabrication equipment to reduce import dependence.
2. Strengthening R&D Ecosystem: Public–private partnerships in semiconductor research should be expanded, and long-term funding mechanisms must be institutionalised.
3. Skilling and Academic Collaboration: Industry–academia collaboration should be strengthened to create specialised semiconductor curricula and research programs.
4. Stable and Predictable Policy Environment: The government must ensure regulatory certainty, timely disbursal of incentives, and ease of doing business to build investor confidence.
5. Global Strategic Partnerships: India should leverage strategic partnerships for technology transfer while simultaneously building domestic intellectual property capabilities.

Conclusion: India Semiconductor Mission 2.0 represents a transition from subsidy-driven capacity creation to ecosystem-led industrial policy. By integrating fabrication, design, materials, research, and skilling within a coherent framework, the mission seeks to create a robust and sustainable semiconductor ecosystem. However, addressing structural challenges related to capital intensity, technological gaps, and skill shortages will be critical for achieving long-term technological self-reliance and strategic autonomy.

Question: “India’s semiconductor strategy must move beyond fabrication to ecosystem building.” In light of ISM 2.0, examine the opportunities and challenges in achieving this objective.

Source: BusinessLine