Budget FY27: India approves second semiconductor scheme, electronics incentive increased to ₹40,000 crore

NEW DELHI: In the Union Budget for 2026-27, the Centre announced a second tranche of incentives under the India Semiconductor Mission (ISM), five years after rolling out the first ₹76,000-crore programme, and expanded the electronics component manufacturing scheme (ECMS) to a net outlay of ₹40,000 crore to deepen domestic chip and electronics manufacturing.

The finance minister, while presenting the Budget on Sunday, also announced rolling out tax exemptions for India’s contract manufacturers if they partner with foreign brands to import high-end equipment for manufacturing devices such as smartphones, laptops and other electronic appliances.

The announcements were welcomed by India’s electronics and chipmaking industries, with analysts and stakeholders flagging the measures as supportive of attracting more firms from global technology supply chains into India.

“India Semiconductor Mission 1.0 expanded India’s semiconductor sector capabilities. Building on this, we will launch ISM 2.0 to produce equipment and materials, design full-stack Indian IP, and fortify supply chains. We will also focus on industrial research and training centres to develop technology and skilled workforce.”

Two senior officials Mint spoke with said a formal cabinet approval and announcement of the budgetary outlay for ISM 2.0 is expected in the next eight to 12 weeks. The officials requested anonymity as a formal approval has not yet been granted. Mint had reported on 9 September that the Centre was considering applications for a $20-billion incentive package under ISM 2.0.

Notified in December 2021, ISM 1.0 led to the sanctioning of India’s first private semiconductor fabrication plant by Tata Electronics in Dholera, Gujarat. A total of 10 other projects were approved, including a compound semiconductor facility for industrial applications between homegrown HCL Group and Taiwan’s contract manufacturer Foxconn.

Industry stakeholders said electronics firms are also set to benefit from the five-year tax exemption afforded to contract manufacturers of electronics upon localising equipment and tools – key infrastructure in technology factories.

“Exemption of basic customs duty on specified parts used in manufacturing of microwave ovens to deepen local value addition in consumer durables is a positive for us, as we are evaluating this category. At the same time, the increase in ECMS outlay, after investment commitments exceeded the original target, is a clear pivot to component‑level localization,” said Saurabh Gupta, director–finance and group chief financial officer at Dixon Technologies.

Gupta said India's electronics manufacturing “depends heavily on precision tooling.”

"Co-locating such high-end tool-room capability in India will lower capital expenditure and lead time for us, supporting localization of capital goods such as assembly equipment, fixtures and test jigs, and also reducing dependency on foreign toolmakers. It will also shorten new product introduction (NPI) cycles, and fit with the broader push of the ₹40,000 crore incentives outlay," he said.

Gupta added that the Centre's decision to defer payment window from 15 to 30 days, for customs duty for authorized economic operators and eligible manufacturer‑importers such as Dixon Technologies, “will provide meaningful working‑capital relief and reward compliant, trust‑based supply chains.”

Foxconn’s India entity Bharat FIH, along with Tata Electronics, are among India’s largest electronics manufacturers, while Dixon is the country’s largest listed electronics manufacturer. Spokespersons for Foxconn and Tata Electronics did not respond to queries until press time.

Shares of Syrma SGS, Amber Enterprises and Kaynes Technology, three of India’s top four listed EMS firms, rose 6%, 8.1% and 4.6%, respectively, on Sunday. Dixon’s shares declined 1.5% until press time.

“The enhanced outlay signals confidence in strong investor response to ECMS, where commitments have exceeded initial targets by more than two times. These measures strengthen supply chain resilience for a more integrated, globally competitive semiconductor ecosystem, anchored in domestic innovation and a skilled workforce,” said Ankush Wadhera, managing director and partner, and India leader for semiconductor practice at BCG India.

Semiconductor push

Chip industry stakeholders said the announcement aligns with industry demands for greater investment in higher-value chipmaking activities, beyond assembly and testing.

“ISM 2.0 marks a clear evolution from a fab-centric approach in India to focus on the full value chain of chips—covering equipment, materials and supply chain through chemicals, gases and materials. For India, this means no longer limiting itself to manufacturing chips, but owning capabilities that define long-term competitiveness and strategic autonomy,” said Ashok Chandak, president of the India Electronics and Semiconductor Association (Iesa).

The ECMS programme, which accepted applications until 30 September last year, has already cleared three tranches, including its largest approval of ₹27,166 crore in investments from Tata Group, auto-parts major Motherson, and Foxconn on 2 January.

So far, the ministry of electronics and information technology (MeitY) has approved 68 projects under ECMS, with cumulative investments reaching ₹96,430 crore. Earlier approvals included seven projects worth ₹5,532 crore on 27 October and 17 projects worth ₹7,172 crore on 17 November.

On 2 October last year, union IT minister Ashwini Vaishnaw had said India had received double the projected investment proposals from the private sector, with 249 proposals totalling ₹1.15 trillion by the first application deadline.

Speaking about the proposed five-year tax holiday for imported electronic equipment and tools, Sanjiv Malhotra, senior advisor and head of tax practice at Shardul Amarchand Mangaldas & Co., said, “This exemption should enable the movement of high-tech equipment from abroad to India for the manufacture of electronic goods without the risk of the foreign supplier being held taxable in India.”

According to Malhotra, the sectors expected to benefit the most are electronics manufacturing segments that require high-precision equipment not currently available in India, such as semiconductor manufacturing and high-end display production.