By Priya Sharma | Updated March 2026
What Is the India Semiconductor Mission?
The India Semiconductor Mission (ISM) is the nodal agency under the Ministry of Electronics and Information Technology (MeitY) responsible for building India's domestic semiconductor manufacturing ecosystem. Established in December 2021 under the Digital India Corporation, ISM administers incentive schemes offering up to 50% fiscal support of project cost for semiconductor fabrication plants (fabs), OSAT (Outsourced Semiconductor Assembly and Test) facilities, compound semiconductor units, and display manufacturing facilities.
For foreign investors, ISM represents one of the most aggressive industrial incentive programmes in India's history. The programme has approved 10 projects across six states with total investment commitments of approximately INR 1.6 trillion (USD 17-19 billion). The government's 50% cost-sharing model means that for every dollar a foreign company invests, the Indian government matches it — a level of fiscal support comparable to the US CHIPS Act and EU Chips Act.
India's semiconductor market was valued at USD 38 billion in 2023 and is projected to reach USD 109 billion by 2030. The country already hosts 20% of the world's chip design engineers and 7% of global semiconductor Global Capability Centers (GCCs). What India lacked was manufacturing capacity — ISM is designed to close that gap. FDI in the semiconductor sector is permitted at 100% through the automatic route, with no sectoral restrictions.
Legal Basis
- Cabinet approval, December 15, 2021 — Approved the "Programme for Development of Semiconductors and Display Manufacturing Ecosystem in India" with an outlay of INR 76,000 crore (USD 10 billion).
- Modified Programme (September 2022) — Revised scheme structure with uniform 50% fiscal support across all facility types (fabs, OSAT, compound semiconductors).
- MeitY Notification S.O. 4583(E), December 2021 — Established ISM as a specialized independent business division within the Digital India Corporation.
- Consolidated FDI Policy, Section 5.2.26 — 100% FDI permitted under the automatic route for electronics manufacturing, including semiconductors. No sectoral cap applies.
- Union Budget 2026-27 — Announced ISM 2.0 with INR 8,000 crore outlay for the Modified Programme, plus INR 1,000 crore specifically for ISM 2.0 operations, focusing on semiconductor equipment and materials manufacturing.
- Production Linked Incentive (PLI) Scheme for IT Hardware — Complementary scheme supporting downstream electronics manufacturing that uses semiconductor components.
Incentive Structure
ISM's incentive framework is structured across four schemes, all offering 50% fiscal support. This uniformity was introduced in the September 2022 modification — the original December 2021 programme had varying support levels.
| Scheme | Fiscal Support | Eligible Activities | Key Conditions |
|---|---|---|---|
| Modified Scheme for Semiconductor Fabs | 50% of project cost (pari-passu) | Silicon CMOS wafer fabrication (28nm and above initially, advanced nodes planned) | Credible technology partner; minimum capacity commitments; technology upgrade roadmap |
| Modified Scheme for Display Fabs | 50% of project cost | TFT-LCD, AMOLED, and other display manufacturing | Minimum Gen 6 or above; committed off-take arrangements |
| Modified Scheme for Compound Semiconductors / OSAT / ATMP | 50% of capital expenditure | Compound semiconductors (SiC, GaN), silicon photonics, sensors (MEMS), discrete semiconductors, ATMP/OSAT packaging | Demonstrated technology capability; clear demand pipeline |
| Design Linked Incentive (DLI) Scheme | Up to 50% of design costs (capped at INR 15 crore per project) + 4-6% of net sales over 5 years | IC design, chipsets, SoCs, system design, IP cores | Indian-registered company; prototype within 3 years |
Approved Projects Under ISM
As of March 2026, the government has approved 10 semiconductor projects across six states. These represent the first wave of India's semiconductor manufacturing buildout.
| Company / JV | Facility Type | Location | Investment (INR) | Status |
|---|---|---|---|---|
| Tata Electronics - PSMC (Taiwan) | 12-inch Wafer Fab (logic/power) | Dholera, Gujarat | INR 91,000 crore (~USD 11 billion) | Construction started; production targeted 2026-27 |
| Micron Technology (USA) | ATMP / OSAT | Sanand, Gujarat | INR 22,516 crore (USD 2.75 billion) | Phase-1 validation underway; operational by late 2025 |
| Tata Semiconductor Assembly and Test (TSAT) | OSAT | Jagiroad, Assam | INR 27,000 crore | First chips targeted 2025-26 |
| CG Power - Renesas (Japan) | OSAT | Sanand, Gujarat | INR 7,600 crore | Pilot line operational August 2025 |
| Kaynes Semicon | OSAT | Sanand, Gujarat | INR 3,300 crore | Shipped first modules October 2025 |
| HCL-Foxconn (Taiwan) | Display drivers | Uttar Pradesh | INR 3,706 crore | Commercial production targeted 2027 |
| SiCSem | SiC Fab (compound semiconductor) | Odisha | INR 2,066 crore | Operational targeted 2027-28 |
| 3D Glass Solutions (USA) | Glass substrate | Odisha | INR 1,943 crore | Approved August 2025 |
| CDIL | Discrete chips (expansion) | Punjab | INR 117 crore | Existing facility expansion |
| ASIP Technologies | System-in-Package | Andhra Pradesh | INR 468 crore | Approved August 2025 |
The flagship Tata-PSMC fab in Dholera, Gujarat is India's first large-scale semiconductor fabrication facility. It will produce 50,000 wafers per month for automotive, computing, communications, and AI applications. The partnership with Taiwan's Powerchip Semiconductor Manufacturing Corp (PSMC) provides the technology backbone — PSMC brings process technology for 28nm logic chips, while Tata Electronics manages construction, operations, and Indian market development.
ISM 2.0: Next Phase (2026-27)
The Union Budget 2026-27 announced ISM 2.0 with three strategic objectives:
- Semiconductor equipment and materials manufacturing in India — Moving up the value chain from chip manufacturing to producing the machines and raw materials that make chips
- Full-stack Indian semiconductor IP design — Developing indigenous IP cores, EDA tools, and design capabilities
- Supply chain fortification — Building resilient domestic and global supply chains to reduce import dependency
ISM 2.0 targets for FY 2026-27 include: 1 additional fab unit (INR 4,000 crore investment), 9 compound semiconductor and OSAT units (INR 11,000 crore), 30 design companies supported, and 10 semiconductor IP cores developed. The longer-term vision projects that by 2029, India will design and manufacture chips for 70-75% of domestic applications, with ambitions to achieve 3nm and 2nm technology nodes by 2035.
Eligibility and Application Process
ISM evaluates applications through a structured process managed by its Project Appraisal Committee:
- Technology partnership: Applicants must demonstrate a credible technology partnership with an established semiconductor company. The Tata-PSMC and CG Power-Renesas partnerships exemplify this requirement.
- Financial strength: Applicants must show adequate financial resources to fund their 50% share. Given that fab investments run into billions of dollars, this typically requires corporate-backed or consortium-backed proposals.
- Demand validation: Realistic demand assumptions with committed off-take or clear market analysis.
- Technology upgrade roadmap: For fabs, a clear plan to progress to more advanced nodes over time.
- Application portal: Applications are submitted through the ISM portal (ism.gov.in) during open application windows.
FDI Implications for Foreign Semiconductor Companies
The semiconductor sector is among the most FDI-friendly in India:
- 100% FDI through automatic route — No prior government approval needed; standard FC-GPR reporting to RBI within 30 days of allotment
- No sectoral cap — Foreign companies can own 100% of semiconductor manufacturing entities in India
- Press Note 3 applies — Investments from countries sharing land borders with India (including China) require mandatory government approval. This is particularly relevant given China's dominant role in the global semiconductor supply chain.
- SEZ and GIFT City options — Semiconductor facilities in Special Economic Zones receive additional tax benefits including duty-free imports of capital goods and raw materials
State-Level Incentives
Multiple states layer additional incentives on top of ISM's 50% central support:
- Gujarat: Additional capital subsidy, land at subsidized rates in Dholera SIR and Sanand industrial areas, power and water subsidies
- Uttar Pradesh: SGST exemption for up to 10 years, capital subsidy, land support
- Karnataka, Tamil Nadu, Telangana: Competing semiconductor policies with land, power, and tax incentives
- Assam, Odisha, Andhra Pradesh: Additional incentives for eastern India investments under special packages
Comparison with Global Semiconductor Incentives
| Programme | Country | Total Outlay | Key Incentive | Target |
|---|---|---|---|---|
| India Semiconductor Mission | India | INR 76,000 crore (USD 10 billion) + ISM 2.0 | 50% of project cost for fabs and OSAT | Domestic manufacturing for 70-75% of needs by 2029 |
| CHIPS and Science Act | United States | USD 52.7 billion + USD 24 billion tax credits | Direct subsidies + 25% investment tax credit for fab construction | Increase US chip capacity by 203% by 2032; raise global share from 10% to 14% |
| European Chips Act | EU | EUR 43 billion (public + private) | State aid for fabs + R&D funding | Double EU global market share from 10% to 20% by 2030 |
| K-Chips Act | South Korea | KRW 340 trillion (private-led) | Tax credits up to 25% for fab investment | Maintain global memory chip leadership |
| TSMC/Government packages | Japan | JPY 3.9 trillion (USD 25 billion) | Up to 50% subsidy for advanced fabs (TSMC Kumamoto) | Rebuild domestic chip manufacturing |
India's 50% capital support is on par with Japan's subsidy for TSMC's Kumamoto fab and more generous as a percentage than the US CHIPS Act's approach. However, India starts from a much smaller manufacturing base, making the challenge of building a complete ecosystem — including trained workforce, chemical supply chains, and IP infrastructure — more significant.
Common Mistakes
- Treating ISM's 50% support as a guaranteed subsidy. The 50% fiscal support is disbursed on a pari-passu basis — meaning the government co-invests alongside the applicant at each milestone. If the private investor slows down or reduces scope, government disbursements proportionally decrease. This is not a front-loaded grant; it requires sustained capital deployment.
- Underestimating the technology partner requirement. ISM's first round of approvals rejected several applications that lacked credible technology partnerships. A foreign investor cannot simply propose a fab with in-house capabilities — they need a demonstrated partnership with an established foundry (like PSMC, Renesas, or Micron) that provides process technology and IP.
- Ignoring state-level approvals and land acquisition timelines. While ISM provides central government incentives, the actual facility requires state-level land allocation, environmental clearances, power and water supply agreements, and construction permits. The Dholera fab site, for example, benefits from being in a pre-approved Special Investment Region — greenfield sites without such designation can face 12-18 months of additional approvals.
- Not planning for workforce development costs. India has abundant chip design talent (20% of global design engineers) but limited fab operations experience. Foreign investors must budget for extensive workforce training — often requiring 6-12 months of overseas training at partner facilities before Indian operations begin. ISM does not cover training costs under the 50% support.
- Overlooking transfer pricing implications of technology partnerships. When a foreign parent (e.g., PSMC) licenses process technology to an Indian subsidiary, the royalty and technology licensing fees must comply with Indian transfer pricing rules and FEMA regulations on current account transactions. Improperly structured technology fees can trigger tax disputes and RBI scrutiny.
Practical Example
ChipWorks Inc., a US-based compound semiconductor company specializing in silicon carbide (SiC) power devices for EVs, decides to set up manufacturing in India under ISM. Here is how the process works:
Structure: ChipWorks incorporates ChipWorks India Pvt Ltd as a wholly-owned subsidiary with INR 400 crore authorized capital. ChipWorks Inc. holds 100% equity — permitted under the automatic route with no sectoral restrictions.
ISM Application: ChipWorks India applies under the Modified Scheme for Compound Semiconductors. The total project cost is INR 800 crore. ISM approves 50% fiscal support — INR 400 crore — disbursed on a pari-passu basis across four milestones: site preparation (10%), equipment installation (30%), first wafer out (40%), and commercial production (20%).
Location: ChipWorks selects a site in Gujarat's Sanand industrial area, adjacent to the existing Micron and CG Power-Renesas facilities. Gujarat's state semiconductor policy provides an additional 20% capital subsidy (INR 160 crore), subsidized land at INR 500 per sq meter, and power at INR 3 per unit for 10 years.
Total effective support: Central ISM support (INR 400 crore) + Gujarat state support (INR 160 crore + land and power subsidies) = approximately 70% of project cost covered by government incentives. ChipWorks' effective investment is INR 240 crore (approximately USD 28 million) for an INR 800 crore facility.
FDI compliance: ChipWorks files FC-GPR within 30 days of share allotment. Annual FLA returns are filed with RBI. Transfer pricing documentation is maintained for the technology license from ChipWorks Inc. (USA) to ChipWorks India, with royalty capped at 5% of net sales as per the arm's length benchmark.
Timeline: ISM application to approval: 6 months. Construction to first wafer: 18 months. Total time from incorporation to commercial production: approximately 30 months.
Key Takeaways
- India Semiconductor Mission provides 50% fiscal support for semiconductor fabs, OSAT, compound semiconductors, and display manufacturing — one of the most generous chip incentive programmes globally
- 10 projects approved with INR 1.6 trillion in total investment, anchored by the Tata-PSMC fab in Dholera (INR 91,000 crore) and Micron OSAT in Sanand (INR 22,516 crore)
- 100% FDI is permitted through the automatic route for semiconductor manufacturing with no sectoral cap
- ISM 2.0 (announced in Budget 2026-27) expands focus to semiconductor equipment manufacturing, full-stack IP design, and supply chain resilience
- State-level incentives in Gujarat, UP, Karnataka, and others can push effective government support to 60-75% of project cost when combined with ISM
- The Design Linked Incentive scheme supports 24 semiconductor design startups, with INR 430 crore in venture capital attracted to the design ecosystem
Considering semiconductor manufacturing or design operations in India? Beacon Filing provides FDI advisory for semiconductor investments, including ISM application support, entity structuring, FEMA compliance, and transfer pricing documentation.