India has officially doubled down on its semiconductor ambitions. In the Union Budget 2026, the government unveiled India Semiconductor Mission (ISM) 2.0, a refined incentive framework designed to move the nation from "assembly and testing" to "front-end fabrication and equipment manufacturing."
The Zero-Duty Mandate: Targeting Capex
The most significant change in ISM 2.0 is the removal of all import duties on semiconductor manufacturing equipment (SME). For a modern 28nm or 14nm fab, equipment can account for up to 70% of the total $5 billion to $10 billion capex. By eliminating these duties, India is effectively reducing the "Time-to-ROI" for global giants like Samsung, Intel, and TSMC by an estimated 18 months.
Furthermore, the policy introduces a 5-year Corporate Tax Holiday for any firm achieving 40% value addition within India. This is a direct challenge to the established hubs in Taiwan and South Korea, positioning India as the most cost-effective destination for the "China+1" diversification strategy.
Focus on Specialty Fabs and Power Electronics
Recognizing that it cannot yet compete with the 2nm logic leads, ISM 2.0 prioritizes Specialty Fabs—specifically focusing on Silicon Carbide (SiC) and Gallium Nitride (GaN). These materials are the backbone of the EV revolution and the AI server power-supply market.
The government has set a target of producing 15% of the world's power semiconductors within India by 2030. To achieve this, ISM 2.0 provides an additional 20% "Top-up" subsidy for R&D centers focused on wide-bandgap materials, ensuring that India builds the intellectual property alongside the physical hardware.
ISM 2.0 Key Policy Pillars
- - Duty Waiver: 0% import duty on Lithography, Etching, and Metrology tools.
- - Talent Subsidy: 50% reimbursement for "Masters in VLSI" training programs.
- - Cluster Support: Free land and discounted power in the Dholera and Sanand GIFT City zones.
- - Design Linked Incentives (DLI): Extended to include "Agentic Silicon" designs for autonomous robotics.
Conclusion: Securing the Sovereign Supply Chain
India's ISM 2.0 is not just an economic policy; it is a National Security Directive. In an era where AI compute is the new oil, India realizes that relying on external foundries is a strategic vulnerability. By aggressively incentivizing the mid-stream of the supply chain, India is ensuring that it remains an indispensable partner in the global tech ecosystem.
For the global semiconductor industry, the message is clear: India is open for HVM (High Volume Manufacturing). The race to build the first 12-inch wafer fab on Indian soil has just accelerated, and the winners will likely dictate the technical balance of power in South Asia for the next decade.