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.

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.”

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.”

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.”