FinMin panel clears Budget proposal of ₹1.25 lakh cr. for ISM 2.0

India Semiconductor Mission 2.0 (ISM 2.0) — UPSC Study Note

1. At a Glance

• India Semiconductor Mission (ISM) 2.0 is the second phase of India's flagship programme to build a domestic semiconductor chip-manufacturing ecosystem, announced in Union Budget 2026-27 (February 1, 2026). [S1]
• The Expenditure Finance Committee (EFC) under the Finance Ministry has cleared a budget proposal of ₹1.25 lakh crore for ISM 2.0 — significantly higher than the ₹76,000 crore earmarked for ISM 1.0. [S4]
• ISM 2.0 signals India's strategic shift from ecosystem creation to ecosystem consolidation and global integration, covering semiconductor equipment, materials, indigenous IP, and supply chain resilience. [S2]
• Critical for UPSC: touches GS-III (science & technology, industrial policy), GS-II (government schemes), and economic geography; also intersects with geopolitics of chip supply chains.

2. Why in the News

• July 1, 2026: The Expenditure Finance Committee (EFC) — the expenditure department under the Finance Ministry — formally cleared the ₹1.25 lakh crore budget proposal for ISM 2.0; it will now be placed before the Union Cabinet for final approval. [S4]
• The approval follows the Union Budget 2026-27 (February 1, 2026) announcement, in which Finance Minister Nirmala Sitharaman announced ISM 2.0 with an initial FY 2026-27 provision of ₹1,000 crore for industry-led research and training centres. [S1][S3]
• The EFC-cleared ₹1.25 lakh crore is a multi-year total outlay, distinct from the annual Budget line item of ₹1,000 crore for FY 2026-27. [S1][S4]

3. Background & Evolution

• December 2021: Cabinet approved the Semicon India Programme with a total outlay of ₹76,000 crore (ISM 1.0), administered by the Ministry of Electronics and Information Technology (MeitY). [S5]
• 2022: India Semiconductor Mission (ISM) set up as a specialised and independent business division within Digital India Corporation (DIC) under MeitY to serve as the nodal agency. [S5]
• 2023-24: Multiple semiconductor fab and ATMP (Assembly, Testing, Marking & Packaging) projects approved; Micron Technology (USA) announced a greenfield ATMP unit in Sanand, Gujarat.
• 2024-25: PM Modi presented with the first set of Made-in-India chips, marking a milestone in domestic fabrication capacity. [S6]
• December 2025: 10 projects with total investment of ₹1.60 lakh crore approved across 6 states. [S2]
• June 2026: 12 projects worth ~₹1.64 lakh crore approved under ISM cumulatively. [S2]
• February 1, 2026: Budget 2026-27 announces ISM 2.0, marking Phase 2 of the semiconductor mission. [S1]
• July 1, 2026: EFC clears ₹1.25 lakh crore multi-year outlay for ISM 2.0. [S4]

4. Core Static Facts

5. Multi-Dimensional Analysis

Economic

• ₹1.25 lakh crore outlay is one of the largest single-mission industrial allocations in India's history, signalling semiconductor manufacturing as a core engine of the next phase of economic growth. [S4]
• ISM projects are expected to generate high-skilled employment across fab, ATMP, equipment, and design segments.
• Domestic chip production reduces India's import dependence — India currently imports nearly all its semiconductors (annual import bill ~$24–27 billion).
• ISM 2.0's focus on equipment and materials is intended to deepen local value-add beyond pure assembly/testing.

Geopolitical / Strategic

• Semiconductor self-reliance is a national security imperative: chips underpin defence systems, telecommunications, EVs, AI infrastructure, and critical digital infrastructure. [S2]
• India's semiconductor push is aligned with global supply-chain de-risking from China, making India an attractive alternative hub for US, Japan, EU, and Taiwan-origin companies.
• ISM 2.0's emphasis on resilient supply chains directly addresses vulnerabilities exposed during the 2020-22 global chip shortage. [S2]
• Ties in with India's bilateral semiconductor MoUs with the USA (iCET), Japan, and the EU.

Scientific / Technological

• ISM 2.0 targets full-stack indigenous semiconductor IP — from chip design (EDA tools, IP cores) to fabrication and ATMP. [S2]
• Roadmap includes achieving 3-nm and 2-nm technology nodes, comparable to TSMC's frontier fabs. [S2]
• India's IIT-based chip design centres and proposed industry-led R&D and training centres (funded under the ₹1,000 crore FY26-27 provision) are foundational. [S1]
• First Made-in-India chips (presented to PM Modi) demonstrate early fabrication capability under ISM 1.0. [S6]

Administrative / Governance

• The EFC clearance is a mandatory step for large central sector scheme proposals before Cabinet approval — its clearing signals fiscal due diligence is complete. [S4]
• ISM operates as an independent business division within DIC, insulated from routine MeitY bureaucracy, to enable fast decision-making.
• Multi-ministry coordination required: MeitY (lead), MoF, Ministry of Commerce (SEZs, trade), Ministry of Science (R&D), and state governments (land, power, water for fabs).

Historical

• India's first semiconductor fab attempt was Semiconductor Complex Ltd (SCL), Chandigarh, established 1983-84 under the Ministry of Electronics — damaged by fire in 1989, never fully recovered.
• ISM 1.0 (2021) represented India's second major attempt at a semiconductor ecosystem, this time with private sector partnership and larger fiscal incentives.
• ISM 2.0 consolidates gains and pushes into equipment and materials — a trajectory mirroring South Korea's (DRAM) and Taiwan's (TSMC) historical industrial policy arcs.

6. Recent Developments (Last 12-18 Months)

• December 2025: 10 semiconductor projects worth ₹1.60 lakh crore approved across 6 states, spanning silicon fabs, SiC fabs, advanced packaging, and ATMP units. [S2]
• February 1, 2026: FM Sitharaman announces ISM 2.0 in Union Budget 2026-27; ₹1,000 crore provisioned for FY 2026-27 for industry-led research and training. [S1][S3]
• February 2026: PIB notes ISM 2.0 will focus on semiconductor equipment, materials, indigenous IP, and supply chains — marking a strategic evolution from ISM 1.0's fab/ATMP focus. [S2]
• June 2026: Total approved projects under ISM reach 12 projects, ~₹1.64 lakh crore. [S2]
• July 1, 2026: EFC clears ₹1.25 lakh crore multi-year outlay for ISM 2.0; proposal to proceed to Union Cabinet. [S4]

7. Prelims Hooks

• ISM 2.0 was announced in Union Budget 2026-27 by Finance Minister Nirmala Sitharaman. [S1]
• The Expenditure Finance Committee (EFC) — under the Finance Ministry's expenditure department — cleared the ₹1.25 lakh crore outlay for ISM 2.0 in July 2026. [S4]
• ISM 2.0 outlay of ₹1.25 lakh crore is higher than ISM 1.0's ₹76,000 crore — not lower. [S4]
• Implementing agency for ISM is the India Semiconductor Mission, a division of Digital India Corporation (DIC) under MeitY. [S5]
• ISM 1.0 offered fiscal support of up to 50% for silicon fabs, compound semiconductor fabs, ATMP units, and chip design entities. [S1]
• As of June 2026, 12 projects worth ~₹1.64 lakh crore have been approved under ISM. [S2]
• ISM 2.0 target: India capable of designing/manufacturing chips for 70–75% of domestic applications by 2029. [S2]
• ISM 2.0 shifts focus to semiconductor equipment, materials, and indigenous IP — beyond the fab/ATMP focus of ISM 1.0. [S2]
• India's first semiconductor fab: Semiconductor Complex Ltd (SCL), Chandigarh, established 1983-84. [historical]
• ISM 2.0's FY 2026-27 annual Budget line is ₹1,000 crore (for industry-led R&D/training); the EFC-cleared ₹1.25 lakh crore is the total multi-year programme outlay. [S1][S4]
• After EFC clearance, the proposal must be placed before the Union Cabinet for final approval. [S4]
• Long-term goal: India to be among top semiconductor nations globally by 2035. [S2]

8. Mains Relevance

GS Papers & Syllabus Headings: - GS-III: Indian Economy — Industrial policy, infrastructure, science & technology, indigenisation of technology - GS-II: Government policies and interventions for development in various sectors; bilateral/multilateral groupings involving India - GS-III: Awareness in IT, Space, Computers, Robotics, Nano-technology, Bio-technology; IP rights

Plausible Mains Question Stems: 1. "India Semiconductor Mission 2.0 represents a strategic shift from ecosystem creation to ecosystem consolidation. Critically examine the significance of this shift and the challenges India faces in achieving semiconductor self-reliance." (GS-III, 15 marks) 2. "In the context of global semiconductor supply chain realignment, evaluate how India's semiconductor policy (ISM 1.0 and 2.0) serves both economic and national security objectives." (GS-III / GS-II, 15 marks) 3. "Analyse the role of the Expenditure Finance Committee in India's public financial management and its significance in clearing large scheme proposals like ISM 2.0." (GS-II, 10 marks)

9. Related Topics to Study Next

10. Common Errors / Trap Areas

1. Confusing ₹1.25 lakh crore with ₹1,000 crore: The ₹1,000 crore is the annual FY 2026-27 Budget provision; ₹1.25 lakh crore is the total multi-year EFC-cleared outlay — these are different figures cited in the same news cycle.
2. Wrong ministry: ISM is under MeitY, not the Ministry of Science & Technology or the Ministry of Commerce. Confusing with DST or DPIIT is common.
3. ISM 1.0 outlay: ISM 1.0 was ₹76,000 crore, not ₹10,000 crore or ₹1 lakh crore — the number is frequently jumbled in MCQs.
4. Implementing agency confusion: The mission is administered by India Semiconductor Mission under Digital India Corporation — not directly by MeitY's secretary, NASSCOM, or NITI Aayog.
5. ISM 2.0 focus area confusion: ISM 2.0 focuses on equipment, materials, and indigenous IP — not primarily on new fab approvals (that was ISM 1.0's thrust). Mistaking scope leads to wrong answers in concept-based MCQs.

11. Sources

• [S1] "Budget 2026-27 announces the launch of India Semiconductor Mission (ISM) 2.0" — https://www.pib.gov.in/PressReleasePage.aspx?PRID=2221522 — (Tier 1: pib.gov.in)
• [S2] "India Semiconductor Mission 2.0" (PIB detailed factsheet) — https://www.pib.gov.in/PressReleasePage.aspx?PRID=2224839 — (Tier 1: pib.gov.in)
• [S3] "Budget 2026-2027 Speech of Nirmala Sitharaman, Minister of Finance" — https://www.indiabudget.gov.in/doc/budget_speech.pdf — (Tier 1: indiabudget.gov.in)
• [S4] "FinMin panel clears Budget proposal of ₹1.25 lakh cr. for ISM 2.0" — https://www.thehindu.com/todays-paper/2026-07-01/th_chennai/articleGHQG6HN1R-15165550.ece — (Tier 4: thehindu.com) [primary article, PTI dateline July 1, 2026]
• [S5] "India Semiconductor Mission" (PIB, 2022) — https://www.pib.gov.in/PressReleasePage.aspx?PRID=1808676 — (Tier 1: pib.gov.in)
• [S6] "PM Modi presented with first set of Made-in-India Chips" — https://www.pib.gov.in/PressReleasePage.aspx?PRID=2163184 — (Tier 1: pib.gov.in)