India's first semiconductor mission brought fabs, OSAT units, and chip projects into the policy pipeline. Its second phase is being shaped around a harder question: whether India can fix the weak links that determine if those projects become a sustainable semiconductor ecosystem.
India Semiconductor Mission (ISM) 2.0 was announced in the Union Budget 2026-27 to focus on semiconductor equipment and materials, full-stack Indian semiconductor IP, supply chains, and industry-led research and training centers. The shift reflects a recognition that India's chip ambitions cannot be measured only by approved investment or fab announcements.
"ISM 1.0's primary success lies in establishing the foundation of India's semiconductor ecosystem rather than delivering immediate large-scale manufacturing output," said Manish Rawat, semiconductor analyst at TechInsights.
Pierre Cambou, principal analyst, global semiconductors at Yole Group, made a similar point, saying ISM 1.0's most important contribution was strategic rather than manufacturing-led.
"Beyond project announcements, ISM 1.0 achieved something strategically more important: political signaling," Cambou said in emailed comments. "India demonstrated that semiconductors are now considered a national industrial and geopolitical priority."
ISM 1.0, approved in December 2021, was supported by an INR760 billion (approx. US$7.9 billion) incentive framework covering silicon fabs, compound semiconductor facilities, assembly and testing units, and chip design. As of December 2025, the government said 10 semiconductor projects with a total investment of INR1.60 trillion (approx. US$16.6 billion) had been approved across six states. The pipeline has since expanded, with two more projects approved in Gujarat in May 2026.
But analysts say India's position will be determined less by headline investment and more by whether ISM 2.0 can address the gaps that fabs alone cannot solve.
Projects have not yet translated into major output
ISM 1.0 succeeded in putting India into the global semiconductor investment conversation. It attracted interest across packaging, assembly and testing, compound semiconductors, display-related technologies, and chip design.
Despite that, India is not yet a major contributor to global semiconductor output. Most projects remain in the build-out phase, with commercial ramp-up, customer qualification, and supply-chain localization still ahead.
"While actual manufacturing capacity contribution remains at an early stage, with limited impact on global wafer supply or import dependence, ISM 1.0 has effectively driven ecosystem activation by building policy credibility, supply chain interest, workforce readiness, and long-term investor confidence," Rawat said.
Cambou said the first phase also helped align central and state governments around infrastructure, talent, and supply-chain readiness. "Semiconductor ecosystems are built over decades, and ISM 1.0 primarily established credibility, institutional commitment, and continuity rather than immediate manufacturing output," he said.
Backend may be more realistic than fabs
India's semiconductor ambitions span multiple parts of the value chain, but analysts see the strongest near-term opportunity in backend manufacturing, packaging, and design.
"India's semiconductor ambitions might be optimistic, but there is real potential in mature-node fabs, OSAT/ATMP, and chip design areas of the semiconductor supply chain," said Shrish Pant, director analyst at Gartner.
OSAT/ATMP is a practical entry point because it requires lower capital investment than wafer fabrication, can be executed faster, and is closer to India's electronics manufacturing base.
"Over the next five years, India's most commercially viable semiconductor opportunities are likely to center on OSAT/ATMP, advanced packaging, chip design, and selective compound semiconductors," Rawat said.
Cambou also placed chip design, OSAT/ATMP, and selected advanced packaging at the
center of India's opportunity. "India already has one of the world's largest semiconductor design workforces, and this can expand into AI accelerators, automotive chips, and RISC-V ecosystems," he said.
But advanced packaging will require more than assembly capacity. India will need substrates, materials, process know-how, reliability testing, and customers willing to qualify Indian facilities.
Domestic demand is not the same as ecosystem depth
India's domestic market is a clear advantage. Automotive, industrial, smartphone, and consumer electronics demand could support mature-node chips, power devices, and packaging.
"One of the key differentiators for India is its local semiconductor demand, driven primarily by the automotive and industrial sectors for mature nodes, as well as additional demand from the growing smartphone and consumer electronics segment," Pant said.
But demand alone does not create manufacturing competitiveness. Semiconductor production also requires reliable utilities, supplier density, yield learning, customer trust, logistics, and long-term utilization.
Pant said India's immediate focus remains narrower than building the whole value chain. "The initial focus remains on addressing domestic requirements and reducing dependence on imports for relevant chips, rather than on developing a full-stack semiconductor value chain at this stage," he said.
India is not yet substitute for Asian chip hubs
India's semiconductor push is often framed around supply-chain diversification, but analysts caution that the country is not yet comparable with Asia's established manufacturing clusters.
"India is not yet positioned to compete directly with established semiconductor manufacturing hubs such as Taiwan, China, or Singapore in terms of manufacturing maturity," Rawat said.
Cambou said China remains the real benchmark because it has built a comprehensive ecosystem spanning fabs, packaging, materials, equipment, and electronics manufacturing. But India cannot replicate that scale quickly.
"More realistically, India may initially follow a trajectory closer to Singapore, Vietnam, and Malaysia," Cambou said. "Malaysia offers perhaps the closest model for semiconductor packaging and OSAT development."
That makes India's opportunity differentiated rather than substitutional. Its pitch rests on domestic demand, design talent, incentives, and geopolitical relevance, not immediate parity with Taiwan, China, or Singapore.
The supplier base must follow
The most important shift in ISM 2.0 may be its focus on what sits behind the fab: equipment, materials, supply chains, R&D, and training. These areas will determine whether India can move from project approvals to ecosystem depth.
Semiconductor manufacturing depends on specialty chemicals, gases, substrates, tools, cleanroom services, maintenance providers, and logistics partners. Without this ecosystem, India risks remaining dependent on imported inputs even if fabs and OSAT units are built locally.
"ISM 2.0 marks a strategic shift from fab-centric incentives under ISM 1.0 to a more holistic, ecosystem-driven approach," Rawat said.
But the breadth of the mission will not be enough. "However, success will hinge on execution, particularly demand aggregation, procurement visibility, infrastructure readiness, and stronger center-state policy coordination rather than the breadth of incentives alone," Rawat said.
Cambou said the priority should be ecosystem construction: "suppliers, infrastructure, talent, packaging, logistics, and manufacturing experience."
By 2027-2028, India will need proof points beyond investment approvals: OSAT/ATMP facilities operating at scale, at least one viable specialty or mature-node fab, visible supplier growth, stronger design activity, domestic startups, and workforce specialization.
"By 2027-2028, the success of India's semiconductor ambitions will be measured by execution rather than project announcements," Rawat said.
Cambou said investors must also believe India's semiconductor policy is durable beyond political cycles. The next test for ISM 2.0, therefore, is not whether India can raise its ambition, but whether it can turn the weak links exposed by ISM 1.0 into commercial strengths.
Article edited by Jack Wu
