India Semiconductor Mission 2.0 Launched with Major Budget Allocation
Finance Minister Nirmala Sitharaman has officially launched the India Semiconductor Mission (ISM) 2.0, a comprehensive programme aimed at revolutionizing the country's technology infrastructure. This initiative, announced during the Union Budget 2026-27 presentation in Parliament, represents a significant step forward in India's quest for technological self-reliance and global competitiveness.
Key Components of ISM 2.0
The newly launched mission focuses on three primary objectives that will transform India's semiconductor landscape:
- Production of Equipment and Materials: Developing domestic manufacturing capabilities for semiconductor equipment and raw materials
- Full-Stack Indian IP Development: Creating comprehensive intellectual property solutions designed entirely in India
- Supply Chain Fortification: Strengthening the entire semiconductor supply chain to reduce dependency on foreign sources
Sitharaman emphasized that "India's semiconductor mission, 1.0 expanded India's semiconductor sector capabilities. Building on this, we launch ISM 2.0 to produce equipment and materials, develop full-stack Indian IP, and strengthen supply chains."
Financial Commitment and Industry Focus
The government has allocated Rs 1,000 crores specifically for this ambitious programme. The finance minister highlighted that the focus will be on establishing industry-led research and training centres to develop cutting-edge technology and create a skilled workforce. This strategic approach aims to accelerate the growth of India's Electronics and Information Technology Sector significantly.
According to Sitharaman, "We will also focus on industry-led research and training centers to develop technology and a skilled workforce," indicating a clear partnership model between government initiatives and private sector expertise.
IT Sector Reforms and Incentives
The budget proposals include substantial reforms for the IT/ITeS sector, featuring several key measures:
- Consolidated IT Services Category: All IT services including software development, IT-enabled services, knowledge process outsourcing, and contract R&D services will be grouped under a single "Information Technology Services" category
- Enhanced Safe Harbour Threshold: The threshold for availing safe harbour provisions for IT services has been substantially increased from Rs 300 crore to Rs 2,000 crore
- Streamlined Approval Process: Safe harbour applications will be approved through an automated, rule-driven process without requiring tax officer examination
- Extended Validity: Once approved, IT services companies can continue using the same safe harbour provisions for up to five consecutive years
- Fast-Track APA Process: The Unilateral Advance Pricing Agreement process for IT services will be expedited with a target completion within two years
Tax Benefits for Cloud Services
In a significant move to attract global technology companies, the finance minister proposed a 'tax holiday' until 2047 for foreign companies providing cloud services to global customers using data centre services from India. This incentive comes with the condition that these companies must serve Indian customers through an Indian reseller entity, ensuring local participation and economic benefits.
Broader Economic Impact
The budget also addresses the Electronics Components Manufacturing Scheme (ECMS), which was launched in April 2025 with an initial outlay of Rs 722,919 crore. The scheme has already attracted investment commitments at double the target amount, prompting a proposal to increase the outlay to Rs 40,000 crore to capitalize on this momentum.
Furthermore, the government has proposed establishing an 'Education to Employment and Enterprise' Standing Committee to recommend measures focusing on the Services Sector as a core driver of the Viksit Bharat vision.
Industry Implications and Future Prospects
Industry leaders have welcomed these announcements, noting that the combination of incentives, component localization, and semiconductor-linked supply chains will help Indian manufacturers climb the value chain. The initiatives are expected to create large-scale, future-ready employment opportunities, particularly benefiting young engineers, technicians, and skilled workers across the country.
The comprehensive approach of ISM 2.0, combined with IT sector reforms and tax incentives, positions India as an increasingly attractive destination for technology investment and innovation. These measures collectively aim to establish India as a global hub for semiconductor manufacturing and IT services while fostering indigenous technological development and creating sustainable employment opportunities for the nation's growing workforce.
