FM Nirmala Sitharaman announces ISM 2.0, fresh chip incentives, customs duty relief, and tax measures to strengthen India’s electronics manufacturing ecosystem
The Union Budget 2026 underscored India’s ambition to emerge as a major global centre for electronics manufacturing, with a renewed focus on semiconductors and a substantial increase in support for component production. A new round of incentives for chip manufacturing was announced, alongside a near doubling of the allocation for the Electronics Components Manufacturing Scheme to Rs 40,000 crore.
Presenting the Budget, Finance Minister Nirmala Sitharaman said the first phase of the India Semiconductor Mission had already helped widen the country’s capabilities in the chip sector. “Building on this, we will launch ISM 2.0 to produce equipment and materials, design full-stack Indian IP, and fortify supply chains,” she said. The next phase will be backed by fresh funding aimed at attracting global fabrication units and key supply chain participants to set up operations in India.
India’s semiconductor drive has gathered momentum since December 2021, when the government rolled out a Rs 76,000 crore incentive package to build a domestic chip ecosystem. The programme provided fiscal assistance covering up to half of the project cost for approved semiconductor and display fabrication ventures.
After decades of unsuccessful attempts to draw large-scale chipmakers, India achieved a breakthrough in June 2023 when US-based Micron announced a Rs 22,500 crore investment in a semiconductor testing and packaging facility in Gujarat, the first major global player to commit to the sector in the country.
The push continued in February 2024, when the government cleared three large semiconductor proposals together valued at Rs 1.26 lakh crore. These included Tata Electronics’ Rs 91,000 crore fabrication plant in Dholera, Gujarat, being set up in partnership with Taiwan’s Powerchip Semiconductor Manufacturing Corp; a Rs 27,000 crore Tata Semiconductor Assembly and Test (TSAT) facility in Morigaon, Assam; and a Rs 7,600 crore project by CG Power in collaboration with Japan’s Renesas Electronics and Thailand’s Stars Microelectronics.
Alongside semiconductor fabrication, the government is also intensifying its focus on building a strong domestic base for electronics components. “The Electronics Components Manufacturing Scheme, launched in April 2025 with an outlay of Rs 22,919 crore, already has investment commitments at double the target. We propose to increase the outlay to Rs 40,000 crore to capitalise on the momentum,” Sitharaman said in her speech.
The Finance Minister also outlined plans to strengthen the talent and innovation pipeline for the sector. “We will also focus on industry-led research and training centres to develop technology and skilled workforce,” she said.
To deepen local value addition in consumer electronics manufacturing, the Budget proposed removing basic customs duty on selected parts used in the production of microwave ovens.
In another step aimed at making India more competitive in electronics supply chains, the government announced a tax-related relief for foreign entities storing components in bonded warehouses in the country. This safe harbour provision would allow a fixed profit margin of 2 per cent on invoice value for such operations. “The resultant tax of about 0.7 per cent will be much lower than in competing jurisdictions,” the FM said.
