What the India Semiconductor Mission Has Bought, and What ISM 2.0 Changes
SRF Capital Studio Research DeskFunding Intelligence, SRF Capital StudioFive years in, the India Semiconductor Mission has twelve approved units and three in production. Its second phase shifts money toward the suppliers and IP the first phase could not reach.
Summary
- The India Semiconductor Mission started in December 2021 with ₹76,000 crore and, by July 2026, had approved 12 units worth more than ₹1.6 lakh crore, three of them in commercial production.
- ISM 2.0, cleared in July 2026 with ₹1,27,500 crore, moves support toward equipment, materials, design IP and research, the layers the first phase left imported.
- For founders and suppliers, the second phase matters more than the first, because it pays for the kind of businesses a startup or MSME can actually build.
Judged by its first promise, the India Semiconductor Mission has delivered. It set out to get chip manufacturing started on Indian soil, and in 2026 three plants began shipping product. That was far from certain in 2021, when India had no commercial semiconductor factory at all.
Judged by what an industry needs to sustain itself, the mission is at the halfway mark. The factories exist. The suppliers, tools, materials and owned designs that keep factories competitive mostly do not. The second phase, approved this July, is a direct response to that gap.
What phase one paid for
The original mission had ₹76,000 crore to spend. Its main instrument was simple and generous: for approved fabs and assembly units, the centre would fund half of the project cost, and states could add their own support on top. For Micron's Sanand plant, Gujarat added a further 20%, so Micron itself put in about $825 million, roughly 30% of the $2.75 billion project.
By July 2026 the mission had approved 12 units with cumulative investment of more than ₹1.6 lakh crore. Half of them are in Gujarat. Others are in Assam, Uttar Pradesh, Odisha, Punjab and Andhra Pradesh. Micron, Kaynes Semicon and CG Semi are in commercial production, all three in assembly and test. The first wafer fab, Tata Electronics and PSMC at Dholera, is under construction with commercial operations now targeted for mid-2028.
Phase one proved India could get chip plants built; it did not prove India could make them competitive.
Where phase one fell short
Three gaps stand out, and none of them is a surprise. The first is timing: both Micron and Tata took longer than first announced, which is normal for first-of-kind plants but should reset expectations for the rest of the pipeline.
The second is depth. A packaging plant in Sanand still imports its substrates, chemicals, gases and most of its equipment. Subsidising the final factory does little for the hundreds of suppliers behind it. The third is ownership. The design work done in India is excellent, but it is largely done for foreign companies, and the Design Linked Incentive scheme for Indian startups is still small.
What ISM 2.0 changes
The Cabinet cleared the second phase on 15 July 2026 with an outlay of ₹1,27,500 crore. The emphasis moves from anchor factories to the ecosystem around them: semiconductor equipment, materials including specialty gases and minerals, Indian-owned design IP, research centres and talent. For the first time, the companies that supply chipmakers can apply for mission support, not only the chipmakers.
The budget line for 2026-27 is modest by comparison. The Union Budget set ₹8,000 crore for the modified semiconductor and display programme, the scheme behind the first phase's approvals, with a further ₹1,000 crore for ISM 2.0 in its first year. Most of the new phase's money will flow in later years, which means the approval pipeline over the next eighteen months is the thing to watch.
Our view
The shift is right, and overdue. A country does not become a serious chip location by hosting factories whose inputs arrive by air freight. It gets there when local suppliers qualify into those factories and then sell to plants abroad. Taiwan and South Korea both built that supplier base deliberately, and it took decades.
The risk is that ISM 2.0 repeats the first phase's habit of backing a few large names. Materials and equipment are fragmented industries with many specialist firms. If the second phase only funds conglomerates, it will build the same thin ecosystem with more capital.
What founders and suppliers should do
- Map yourself to a named plant. Ask what the Sanand, Dholera or Jewar units import today that you could make, clean, test or service locally. Specific beats general.
- Qualify before you scale. Chipmakers buy on qualification, which takes months to years. Start the process with one plant before raising capital for capacity.
- Read the ISM 2.0 guidelines as they are notified. Eligibility, ticket sizes and state top-ups will decide whether a mid-sized supplier can use the scheme at all.
- Plan capital in stages. Pair the mission's support with debt and blended structures for equipment, and keep for the qualification period, when revenue is thinnest.
The wider picture of where India stands is in our semiconductor India assessment, and the Gujarat plants are profiled in the Sanand cluster piece. Manufacturers weighing an entry can start with our manufacturing practice.
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SRF Capital Studio Research Desk
Funding Intelligence, SRF Capital Studio
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