FM intros ISM 2.0 to help produce equipment and materials, fortify supply chains

Nirmala Sitharaman, Union Minister of Finance, presented Budget 2026-2027 today. 

She said India Semiconductor Mission or ISM 1.0 expanded India's semiconductor capabilities. Building on this, India has now introduced the ISM 2.0. This will help produce equipment and materials, design full-stack Indian IPs, and fortify supply chains. 

India will also focus on industry-led research, and training centers, and develop technology, and skilled workforce. ECMS, launched in Apr. 2025, with an outlay of Rs. 22,919 crores, already has investment commitments at double the target. India proposes to increase the outlay for ECMS to Rs. 40,000 crores to capitalize on this momentum. Electronics Component Manufacturing Scheme (ECMS), was launched by India's Ministry of Electronics and Information Technology (MeitY).

Scheme for rare earth permanent magnets was launched in Nov. 2025. On a scheme for rare earth permanent magnets, Union Budget proposes to support the mineral-rich states of Odisha, Kerala, Andhra Pradesh, and Tamil Nadu for establishing dedicated rare earth corridors to promote mining, processing, research and manufacturing.

To enhance domestic chemical production and reduce import-dependency, the Union Minister proposed to launch a scheme to support States in establishing three dedicated Chemical Parks, through challenge route, on a cluster-based plug-and-play model.

Strong capital goods capability is a determinant of productivity and quality across different sectors. Some points:

a) High-tech tool rules will be established by central public sector enterprises at two locations, as digitally-enabled automated service bureaus that locally design, test, and manufacture high-precision components at scale, and at lower cost.

b) A scheme for enhancement of construction and infrastructure equipment will be introduced to strengthen domestic manufacturing of high-value and technologically-advanced CIE. This can range from firefighting equipment to lifts, to tunnel-boring machines.

In her Budget speech, Nirmala Sitharaman stated that strong capital goods capability is a determinant of productivity and quality across different sectors. Towards building this capacity, the Union Budget proposes hi-tech tool rooms to be established by CPSEs at two locations as digitally-enabled automated service bureaus that locally design, test, and manufacture high-precision components at scale and at lower cost.

A Scheme for Enhancement of Construction and Infrastructure Equipment (CIE) will be introduced to strengthen domestic manufacturing of high-value and technologically-advanced CIE. This can range from lifts in a multi-story apartment, fire-fighting equipment, large and small, to tunnel-boring equipment for building metros and high-altitude roads. The Budget also proposes a Scheme for Container Manufacturing to create a globally competitive container manufacturing ecosystem, with a budgetary allocation of ₹10,000 crore over a five-year period.

Jaswinder Ahuja, former Corporate VP, Cadence, and Advisor, ISM, said: "The budget has signalled an intent to build on the momentum and learning from ISM 1.0 to build out the complete ecosystem for manufacturing, including equipment, raw materials, and consumables to support the fabs and OSATs. There is also an acknowledgement that design and indigenous IP are important to realize the value of investments in manufacturing.

"We will have to wait to see the final contours of ISM 2.0 to understand how these will be implemented. I remain optimistic and believe that design and IP are where we have the opportunity for maximum value creation and capture."

Arjun Malhotra, Founder HCL and EPIC Foundation, commented: "The Union Budget announced today has demonstrated strong foresight in identifying and empowering the critical pillars those are charting India's Digital and Manufacturing Renaissance.

"Rather than isolated interventions, we see a coherent strategy that addresses the full spectrum from infrastructure (data centres) to manufacturing (ECMS and ISM) to next-generation capabilities (AI). The strategic emphasis on AI utilization across diverse sectors and creation of an enabling framework for AI adoption, will help India to leapfrog traditional development trajectories and will catalyze transformation across healthcare, agriculture, education, financial services, and governance, while strengthening our innovation ecosystem. 

"The substantial enhancement of the Electronics and Component Manufacturing Scheme (ECMS) allocation to ₹40,000 crores is a bold and commendable step that addresses a critical gap in our electronics value chain. This increased corpus will significantly accelerate backward integration, reduce import dependence on critical components, and create a robust domestic manufacturing ecosystem.

"The clarity provided on ISM 2.0 framework is particularly encouraging. The semiconductor industry thrives on policy predictability and long-term commitment. This clear directional guidance will instill confidence among global investors and technology partners. As we position India as a credible alternative in the global semiconductor supply chain by leveraging the complete virtuous cycle of product nation, such policy clarity becomes our competitive differentiator.

"The proposed tax holiday until 2047 for foreign companies providing cloud services to customers globally, provided they use data centre services based in India represents astute recognition of the foundational infrastructure required for our digital economy. What is particularly noteworthy is the government's nuanced understanding in specifically including resellers and cloud service providers within this incentive framework. This will democratize access to world-class digital infrastructure, reduce costs for startups and enterprises, and position India as a preferred location for global cloud operations serving not just domestic but international markets."

"The integrated measures will create powerful synergies—our semiconductor capabilities will support our AI ambitions, our data centre infrastructure will enable both, and our electronics manufacturing will create the hardware foundation for all three."

Avi Avula, President, Applied Materials India, stated: "India Semiconductor Mission 2.0 announced in the Union Budget 2026, is a positive step towards strengthening India's semiconductor ecosystem. We are proud to contribute through our growing capabilities to accelerate research and innovation, in partnership with the Indian semiconductor industry and academia."

Lakshminarayanan (Lux) Ramalingam, COO, Quest Global, stated: “The Union Budget 2026 sends a strong signal that India is moving decisively from sector-specific interventions to building strategic, interconnected industrial ecosystems. The expansion of the India Semiconductor Mission 2.0, coupled with higher outlays, PhD funding, and AI-focused research investments, reflects a clear understanding that long-term competitiveness in semiconductors will be driven by deep R&D, advanced skills, and indigenous IP creation rather than manufacturing alone.

"The announcement of dedicated rare earth corridors in Odisha, Andhra Pradesh, Tamil Nadu, and Kerala is equally significant, as it strengthens India’s position in critical materials that underpin semiconductors, clean energy, defence systems, and electric mobility, while enabling higher-value research and processing capabilities within the country. 

"In parallel, the extension of customs duty exemptions for nuclear power projects till 2035, along with a broader push for industrial stability, supports long-gestation sectors where engineering depth, safety, and reliability are paramount.

"For Quest Global, these measures directly translate into stronger demand for advanced engineering services across the full value chain. As more fabs, nuclear plants, and critical infrastructure projects come onstream, we expect accelerated hiring of high-value engineering roles, from chip design and AI-driven verification to materials, manufacturing, and systems engineering. This creates not just more jobs, but better-paying, future-ready careers that anchor India’s talent deeper into global technology programs.”

Shinto Joseph, Director, Market Development, TASKING, LDRA, said: "More than increased funding, ISM 2.0 focus is on filling the gaps in India's semiconductor ecosystem. This includes research, supply chain, and startups to skills. This will help the semiconductor industry to move to the top gear."

Sagar Vishnoi, Director and Co-Founder Future Shift Labs, stated: "The central government has committed around 76,000 crore INR in incentives under the India Semiconductor Mission and related PLI schemes, with most of it already tied to approved projects, together reducing effective project costs by up to about 30%. India already hosts a large share of global semiconductor design engineers, and Semiconductor 1.0 policy is now pushing local IP creation and product companies.

"Indian Semiconductor Mission 2.0 to produce materials, design full stack Indian IP and fortify supply chains will strengthen India’s position in the global race for better tech infrastructure. While challenge remains in long gestation period and building dense regional clusters. 

"If implemented rapidly with existing PLI and DLI schemes properly, it’ll help in Global South‑oriented chip design for local use‑cases, and can help India in building ‘chip diplomacy’ ahead with global south & north nations. 

"To match the global race, India has to invest more towards its semiconductor mission and with enhancement in outlay to Rs. 40,000 crore (almost double) for semiconductor capacity is a sign how the government wants to improve the critical frontier technology ecosystem for home grown chip production across EVs, electronics and defense industries."

Nikita Kumawat, Co-Founder and Executive Director, Brandworks Technologies, said: “Union Budget 2026 marks a significant change in India’s electronics and semiconductor journey, shifting the focus from capacity creation to long-term capability development. The introduction of the Indian Semiconductor Mission 2.0, and the launch of the Shakti initiative, coupled with an enhanced financial outlay of Rs 40,000 crore, further strengthen the ecosystem and reflect the government’s commitment to building a future-ready ecosystem across equipment, materials, full-stack IP, and resilient supply chains. 

The focus on domestic component manufacturing, R&D, and workforce upskilling is a critical step towards strengthening India’s position in the global electronics value chain. These measures will reduce import dependence and create the foundation for innovation-led, sustainable growth.

India’s next phase of progress will be driven by companies that integrate design, engineering, and advanced manufacturing at scale, for which Budget 2026 lays the groundwork. This transition reinforces India’s ambition to emerge as a global hub for electronics and semiconductor innovation.”

Shriprakash Pandey, Chairman and MD, Commtel Networks, remarked: "Union Budget 2026-27 sends a message about India’s commitment to building future-ready, resilient infrastructure. The continued scale-up in capital expenditure creates the right momentum to strengthen the digital backbone that supports power, energy, transportation and telecom networks across the country. As India’s infrastructure becomes more connected and data-driven, sustained investment in robust communications and digital systems will play a vital role in ensuring reliability, safety and long-term performance.

"We are also encouraged by the Budget’s focus on advanced technologies and domestic manufacturing, including initiatives such as India Semiconductor Mission 2.0, which strengthen the broader ecosystem for secure and high-quality infrastructure deployment. Together, these measures provide clarity, confidence and a stable operating environment for companies working in mission-critical communications and digital infrastructure, enabling us to support India’s growth ambitions while contributing to a more resilient and secure national infrastructure landscape.”

Nakul Kundra, CEO and Co-Founder, Devnagri, added: "The Union Budget 2026 strengthens the Government's initiative to make technology, especially AI, a core driver of India’s next growth phase. Equally encouraging is the Budget’s emphasis on applied technology adoption, from AI-driven customized advisory tools and multilingual platforms like Bharat Vistar, to the use of AI for more efficient, transparent along with data-driven governance and is highly celebrated and reflects a strong commitment to integrating such initiatives at scale. 

"Initiatives such as the ₹10,000 crore MSME Growth Fund and the renewed focus on cities as growth engines can meaningfully democratize AI beyond large enterprises, particularly across manufacturing and public services. That said, real impact will depend on execution, specifically lowering compute costs, expanding domestic data-centre capacity, enabling language-first AI systems, and building high-quality Indian datasets anchored in data dignity, consent, and trust."

Raghav Gupta, Founder and CEO, Futurense, said: “Budget 2026–27 reinforces India’s intent to lead in the AI age by putting talent and capability building at the centre of national progress. The government’s three Kartavya -- driving growth, strengthening people’s capacity, and ensuring opportunity for all, align strongly with the direction in which the technology ecosystem is moving.

"The introduction of the Capacity Building AI Missions for 25 crore people, along with support for the National Quantum Mission, Anusandhan Research Fund, and the R&D and Innovation Fund, signals a long term commitment to creating both the talent and the infrastructure required for an AI-native economy. This is not just an investment in technology but an investment in people.

"By expanding access to advanced learning and accelerating innovation pathways, the Budget lays the groundwork for a workforce that can build, deploy and lead with AI across global industries. It opens the door for deeper industry, academia collaboration and a future defined by capability, confidence, and opportunity.”

Sanjeev Kumar Gupta, CEO of Karnataka Digital Economy Mission (KDEM) stated: "The announcement of ISM 2.0 and the expanded ECMS framework can embrace the entire semiconductor value chain. The combination of national capital support and state-level cluster initiatives creates a unique opportunity to build not just fabs but an integrated ecosystem of IP creation, supply chain resilience, and regional high-skill employment. 

"\The Karnataka state’s commitment- further reaffirmed by the proposed tax holiday until 2047 for Foreign cloud firms using Indian data centres, domestic reseller mandates, and regulatory clarity for cloud infrastructure -creates the long-term certainty of capital-intensive, IP-driven investments demand. Since FY21, these emerging clusters have already generated 138 companies and over 9,000 high-skill jobs in AI, SaaS, cybersecurity, and platform engineering. 

"The convergence of national measures, the ₹10,000 crore SME Growth Fund, MSME credit architecture reforms, and TReDS enhancements, with Karnataka's ₹75 crore Cluster Seed Fund and women-focused entrepreneurship initiatives creates a powerful multiplier effect. MSMEs can now expand beyond traditional metros, strengthen backward integration in electronics supply chains, generate indigenous IP, and attract global design partnerships. We're building the scaffolding for lakhs of high-value jobs across tier-2 and tier-3 cities.

"However, opportunity and execution remain distinct. India still lacks dedicated R&D tax incentives comparable to global competitors, and the concept of Digital Economy Zones, purpose-built ecosystems for deep-tech and electronics innovation, remains under-explored. 

"The next decade will define whether we capture value or remain assemblers. Karnataka's blueprint, leveraging design talent, regulatory clarity, and proven cluster performance offers a compelling model for India's digital and electronics leadership."

Chandra Kishore Thakur, Global CEO, Sterling and Wilson Renewable Energy Group, said: “We feel that this budget has rightly prioritized India’s energy security, especially the increasing role of renewables towards fulfilling this objective over the long term. 

"The relief in customs duty for the import of sodium antimonate used in the manufacture of solar glass is a step in the right direction. This move will reduce input costs for solar panel manufacturers and thereby augment domestic solar equipment production, giving an impetus to the entire sector in terms of atmanirbharta.

"The extending of basic customs duty exemption for capital goods used for manufacturing Lithium-Ion Cells for batteries, and to those used for manufacturing Lithium-Ion Cells for battery energy storage systems (BESS) is also a welcome decision. We must remember that BESS significantly enhances the viability of solar power by addressing its intermittency and enabling efficient energy management. BESS stores excess solar generation for use during low-production periods, thereby augmenting overall system reliability and economics in the solar industry.

"With these new measures, we are certain that renewable energy will play a vital role in India's sustainable development, powering economic growth while reducing dependence on imported fossil fuels.”

Siddharth Bhatia, MD, Oyster Renewables & AB Energia, said: “ Union Budget 2026 lays out a clear growth roadmap anchored in the three Kartavyas of infrastructure expansion, domestic capability building and long-term security. The strong push on infrastructure and record capital expenditure will significantly improve ease of doing business, strengthening grid readiness and accelerating renewable energy deployment. 

"Targeted support for MSMEs through a dedicated growth fund will deepen participation across the clean energy value chain, from manufacturing to services. The focus on rare earth corridors and advanced manufacturing is particularly critical, as it secures essential minerals for battery storage and power electronics. 

"As data centres emerge as a key driver of India’s digital and manufacturing economy, the need for reliable, round-the-clock clean power will only intensify. In this context, customs duty exemptions for battery storage and solar manufacturing inputs will play a vital role in scaling firm renewable energy solutions that support both energy security and sustained economic growth .”