Budget 2026 Propels India's Electronics Manufacturing Vision with Strategic Incentives
In a significant move to cement India's position as a global manufacturing hub for electronics, the Union Budget 2026 unveiled a comprehensive strategy focusing on semiconductor production and component manufacturing. Finance Minister Nirmala Sitharaman announced a new incentive plan under the India Semiconductor Mission (ISM) 2.0 and nearly doubled the financial outlay for the Electronics Components Manufacturing Scheme to Rs 40,000 crore.
Building on Semiconductor Success with ISM 2.0
Finance Minister Sitharaman highlighted the achievements of the India Semiconductor Mission (ISM) 1.0, which has played a pivotal role in expanding the nation's semiconductor sector capabilities. "Building on this foundation, we will launch ISM 2.0 to produce equipment and materials, design full-stack Indian intellectual property, and fortify supply chains," she stated during her Budget speech.
The government plans to allocate fresh funds to attract global fabrication companies and supply chain players, aiming to create a robust and self-reliant semiconductor ecosystem. This initiative follows the considerable success achieved after the central government introduced a Rs 76,000 crore incentive package in December 2021, offering fiscal support of up to 50% of project costs to eligible display and semiconductor fabricators.
India's semiconductor journey, which had faced decades of challenges in attracting credible proposals, gained momentum with American company Micron establishing a Rs 22,500 crore testing and packaging unit in Gujarat in June 2023. This breakthrough was further bolstered by the approval of three major proposals worth Rs 1.26 lakh crore in February 2024, including Tata Electronics' Rs 91,000 crore project for India's first semiconductor fab unit in Dholera, Gujarat, in collaboration with Taiwanese Powerchip Semiconductor Manufacturing Corp.
Electronics Components Manufacturing Scheme Gets Major Boost
Recognizing the growing interest from the supplier community, the Budget significantly enhanced support for manufacturing components essential to the electronics industry. The Electronics Components Manufacturing Scheme, launched in April 2025 with an initial outlay of Rs 22,919 crore, has already secured investment commitments double its target.
"We propose to increase the outlay to Rs 40,000 crore to capitalise on this momentum," Sitharaman announced. The scheme will also focus on establishing industry-led research and training centres to develop advanced technology and cultivate a skilled workforce, addressing critical gaps in the manufacturing value chain.
Customs Duty Exemptions and Logistics Support
To promote deeper value addition in the consumer electronics sector, the Finance Minister proposed exempting basic customs duty on specified parts used in the manufacture of microwave ovens. This measure is expected to reduce production costs and enhance competitiveness in both domestic and international markets.
In another strategic move, the Budget introduced provisions to harness the efficiency of just-in-time logistics for electronics manufacturing. It proposes a safe harbour for non-residents engaged in component warehousing in bonded warehouses, allowing a profit margin of two per cent of the invoice value. "The resultant tax of about 0.7 per cent will be much lower than in competing jurisdictions," Sitharaman emphasized, positioning India as an attractive destination for global supply chain operations.
These initiatives collectively underscore the government's commitment to transforming India into a global electronics manufacturing powerhouse, leveraging policy support, financial incentives, and strategic partnerships to drive growth and innovation in the sector.
