The Cabinet has approved ISM 2.0 with an outlay of around ₹1.27 lakh crore, marking a significant departure from the first phase that provided only ₹50 crore grants. As reported by Outlook Business, Electronics and IT Secretary S Krishnan emphasized that the scheme will combine government funding with investments from venture capital firms to support the development of high-end chips, including those used in artificial intelligence. The most significant shift from ISM 1.0 is the explicit co-investment framework where the government will match investments made by venture capital firms, enabling chip design startups to access patient capital that helps them scale to global competitiveness. The initiative will be in effect for six years starting FY27 and aims to make India a leading chip design hub, while advanced semiconductor manufacturing is expected to take longer.
The government will white-list venture capital firms to co-invest in semiconductor design startups under ISM 2.0, aiming to de-risk funding and deepen India's chip ecosystem. According to Outlook Business, Krishnan explained that investing in 10 startups with a couple of failures would still generate enough revenue from the remaining eight to cover the government's investment. The co-investment model is designed to leverage private-sector expertise in identifying commercially viable companies while allowing the government to support strategic technologies without becoming an active operator or majority shareholder. Under the design-linked incentive scheme, companies currently receive only ₹15 crore, but advance chip design may require ₹1,000 crore or more investments. The government can't provide everything upfront, which is why the combination of VC investment and government co-investment is essential for high-end chip development.
The first phase of ISM provided a one-time grant of ₹50 crore, followed by incentives linked to actual production volumes. As reported by Outlook Business, Krishnan noted that ₹50 crore grants are insufficient to develop high-end chips, limiting startup capabilities to low-end production. The new approach will provide equity-based funding on a parity basis with VC funds, with the government matching private sector investments based on startup performance and revenue generation capacity. With an outlay of ₹1.27 lakh crore, the initiative recognizes that grants alone are insufficient for semiconductor startups, which typically require larger pools of patient capital before commercialisation. The government has not announced a cap for investment in advance chip design by Indian firms and will provide incentives to Indian chip companies in the form of grant, equity or link it to royalty base payment. According to ETManufacturing, the government's decision to provide incentives through equity under the ₹1.27 lakh crore Semicon 2.0 programme is expected to unlock large-scale investments needed for advanced semiconductor chip design in India.
ISM 2.0 broadens the semiconductor push beyond traditional fabrication to include chip design, materials, equipment, skill development and the broader ecosystem. Officials expect ISM 2.0 to place greater emphasis on fabless chip startups, semiconductor design tools, specialty materials, manufacturing equipment and ancillary industries. The emphasis on fabless design acknowledges India's strength in engineering talent and IP, while design tools and materials spur innovation across the supply chain. The government's next challenge is creating Indian product companies capable of commercialising that talent domestically, with the goal of keeping India's high-skilled talent within the country while building world-class product companies. Advance chips are considered semiconductors that contain 7 nano meter and smaller nodes, and India's first chip manufacturing unit will start with production using old technology node of 28 nanometer, generally used for power electronics. As per ETManufacturing, the Semicon 2.0 initiative aims to strengthen India's semiconductor intellectual property (IP), chip design capabilities and systems development, positioning the country as a global semiconductor design hub.
According to Outlook Business, the government under Indian Semicon Mission has identified 105 startups that are already developing chips. The focus of Semicon is on deepening the design ecosystem, with the government aiming to develop IPs, designs of chips and systems. Krishnan emphasized that during Semicon 2.0, India should be capable of designing its own advance chips, though manufacturing may take time. The government is not looking at the manufacturing market yet and is focusing on design capabilities. The work under Semicon 2.0 is expected to place India as a key semiconductor chip-design IP country, with the initiative prioritizing semiconductor design, IP creation and AI-ready chip development by Indian firms. The government's investment strategy will depend on VC fund willingness to invest and startup revenue momentum, with the goal of building confidence in the ecosystem once private investors become comfortable with the market potential. As per ETManufacturing, the India Semiconductor Mission has already identified 105 startups developing semiconductor chips, with the next phase focused on building a strong domestic chip-design ecosystem.
