Synopsis: India’s extended ISM Phase 2 aims to build a full semiconductor ecosystem over 12 years with Rs 1.5 trillion investment, focusing on MSMEs, chip design, materials and packaging, while reducing direct fabrication incentives.
India is considering a major expansion of its Semiconductor Mission Phase 2, extending the program to 12 years. The move aims to support the long development cycles of the semiconductor industry and strengthen India’s overall chip manufacturing ecosystem.
The focus of the new phase is shifting from heavy investment in fabrication units to building a broader supply chain, including chip design, raw materials, packaging, and MSME participation. This approach is intended to create a more self-reliant and complete semiconductor value chain in India.
Proposed Extension of Tenure
The Indian government is considering a massive extension for the second phase of the India Semiconductor Mission (ISM). Instead of the traditional five-year run, officials are planning a longer 12-year tenure.
This extended timeline is intended to match the lengthy gestation periods and extensive handholding required for companies that supply raw materials to chip manufacturing and packaging units. The overarching goal is to nurture domestic Micro, Small, and Medium Enterprises (MSMEs) so they can eventually scale up and supply the world’s largest semiconductor firms.
Increased Financial Outlay and Shift in Focus
The second phase of the ISM is expected to feature a substantial financial layout of nearly Rs. 1.5 trillion. While the first phase focused heavily on setting up mega fabrication units, ISM 2.0 will shift its focus toward building a complete ecosystem.
This means prioritising financial and non-financial incentives for composite semiconductor units, as well as manufacturers of critical raw materials like gases and ingots used in chip fabrication and packaging. Furthermore, a special emphasis will be placed on boosting domestic chip design capabilities for companies that retain their intellectual property rights within India.
Restructuring of Incentive Percentages
While the scope and duration of the mission are expanding, the subsidy percentages for individual heavy manufacturing units are expected to decrease. Under ISM 1.0, the government offered a flat 50% incentive for chip fabrication, Outsourced Semiconductor Assembly and Testing (OSAT), and Assembly, Testing, Marking, and Packaging (ATMP) units. In the second phase, this overall incentive structure is likely to be reduced to 30% for both conventional and advanced chip packaging.
Legacy of ISM Phase 1
The push for a second phase comes on the heels of a highly active first phase, which was initially approved in December 2021 with a Rs. 76,000 crore budget. Under ISM 1.0, the government approved 12 chip manufacturing and packaging projects, drawing a total investment of Rs. 1.64 trillion (Rs. 1.5 lakh crore).
Notable milestones include Micron’s $2.75 billion ATMP unit in Sanand, Gujarat, and India’s first semiconductor fabrication project, a joint venture between the Tata Group and Taiwan’s Powerchip Semiconductor Manufacturing Corporation (PSMC) valued at around $11 billion. The first phase is expected to wrap up its approvals with two final projects from Crystal Matrix Limited and Suchi Semicon Limited.
Stocks to watch
Tata Elxsi Ltd
Tata Elxsi is a design and engineering services company focused on automotive, media, healthcare, and embedded systems. In the semiconductor space, it provides chip design support, VLSI services, and embedded software solutions rather than manufacturing chips. It benefits from rising global demand for semiconductor design, EV electronics, and advanced computing systems.
With a market capitalisation of Rs. 25,894 cr, the shares of Tata Elxsi Ltd were trading at Rs. 4156.60 per share, down from its previous close of Rs. 4,184.65 per share.
CG Power and Industrial Solutions Ltd
CG Power is an industrial engineering and power systems company that is expanding into electronics and semiconductor-related manufacturing. It is positioning itself in areas like chip packaging and advanced electronics production, supported by India’s push to build a domestic semiconductor ecosystem.
With a market capitalisation of Rs. 1,33,405 cr, the shares of CG Power and Industrial Solutions Ltd were trading at Rs. 847.05 per share, up from its previous close of Rs. 819.20 per share.
Kaynes Technology India Ltd
Kaynes Technology is an electronics manufacturing services (EMS) company that builds complex electronic systems for automotive, aerospace, industrial, and consumer sectors. It stands to benefit from increased semiconductor availability as it integrates chips into finished electronic products and expands its domestic manufacturing footprint.
With a market capitalisation of Rs. 20,257 cr, the shares of Kaynes Technology India Ltd were trading at Rs. 3022 per share, down from its previous close of Rs. 3,090.55 per share.
Dixon Technologies (India) Ltd
Dixon Technologies is one of India’s largest contract manufacturers for consumer electronics, including smartphones, TVs, and appliances. With a stronger domestic semiconductor supply, the company can improve production efficiency and reduce import dependence for key electronic components.
With a market capitalisation of Rs. 66,786 cr, the shares of Dixon Technologies (India) Ltd were trading at Rs. 10984.25 per share, down from its previous close of Rs. 11,048.10 per share.
Moschip Technologies Ltd
MosChip Technologies is a semiconductor and VLSI design services company specialising in chip design, verification, and embedded solutions. It is directly aligned with India’s focus on strengthening domestic chip design capabilities and developing fabless semiconductor expertise.
With a market capitalisation of Rs. 4,076 cr, the shares of Moschip Technologies Ltd were trading at Rs. 210 per share, up from its previous close of Rs. 208.20 per share.
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