India is accelerating its push to establish a strong foothold in the global semiconductor industry, advancing swiftly in chip design, advanced packaging, and workforce development. The government is preparing to roll out the second phase of the India Semiconductor Mission (ISM), a $15 billion (₹1.3 trillion) initiative, which is expected to introduce tailored incentives for micro, small, and medium enterprises (MSMEs).
According to senior officials, the new measures aim to position MSMEs as key suppliers of essential raw materials to global chipmakers. If successful, the program could unlock fresh growth opportunities for smaller firms and significantly deepen their role in the semiconductor value chain. This could give a significant boost to MSMEs operating in this space. Here’s a closer look at what ISM’s second phase entails, and how smallcap companies may benefit.
ISM Phase 2: Investment
So far, the India Semiconductor Mission (ISM) has cleared proposals for 10 semiconductor facilities—including eight Assembly, Testing, Marking, and Packaging (ATMP) units and two fabrication plants. The program’s scope extends well beyond manufacturing, with a strong emphasis on chip design, advanced packaging, compound semiconductors, equipment and materials, as well as talent development. (While fabs manufacture wafers, OSAT facilities handle the crucial back-end processes of assembly, testing, marking, and packaging (ATMP). ISM 2.0 explicitly earmarks incentives for OSAT players to ensure India builds strength across the full semiconductor value chain, not just wafer fabrication.)
In its first phase, the India Semiconductor Mission (ISM) earmarked ₹76,000 crore in incentives, of which ₹65,000 crore was allocated for chip manufacturing, ₹10,000 crore for upgrading the Semiconductor Laboratory in Mohali, and ₹1,000 crore for the design-linked incentive scheme.
Most of these funds have already been committed, with only a handful of projects still pending. The upcoming second phase is expected to be far more ambitious, with a combined fiscal outlay from the Centre and states projected at around US$30 billion.
ISM Phase 2: Key focus areas
The second phase expands the focus beyond chip manufacturing, extending support to ecosystem partners that are vital to the semiconductor supply chain.
- Ecosystem support: ISM 2.0 will broaden its scope to support the entire semiconductor ecosystem, not just chip fabrication. That includes equipment makers, materials suppliers, and other ecosystem partners.
- Product development and design: A significant portion of incentives will be earmarked for product development, including domestically designed chipsets whose intellectual property resides in India. The DLI (Design-Linked Incentive) scheme will be revamped and expanded to support larger domestic firms and promote chip design innovation.
- Tech focus on SiC wafers: Silicon Carbide (SiC) wafers have been accorded strategic priority. A SiC compound fab in Bhubaneswar has been approved under ISM, featuring 60,000 wafers per year capacity and 96 million chip packaging/year. Silicon carbide (SiC) wafers are known for their ability to withstand much higher voltages, temperatures, and frequencies than conventional silicon wafers. These properties make them especially well-suited for next-generation applications in telecom, electric vehicles, defence, aerospace, and industrial systems
- Accelerating execution: Pilot fab and chip line facilities are nearing completion. On August 28, India marked a major milestone in its semiconductor journey with the launch of one of the country’s first end-to-end Outsourced Semiconductor Assembly and Test (OSAT) pilot line facilities in Sanand, Gujarat. Semiconductor company CG-Semi, is expected to roll out the first ‘Made in India’ chip from this pilot facility. Other approved projects under ISM include initiatives by Tata Electronics and CG Power, all sanctioned within the past two years. In total, 10 semiconductor projects have received approval since the program’s launch.
Who is expected to benefit?
The second phase of the mission will place strong emphasis on developing supporting industries that are vital to semiconductor manufacturing. This includes suppliers of gases, chemicals, and other critical ancillary services. The move is expected to create significant opportunities for SMEs while building a more integrated and self-reliant semiconductor ecosystem in India.
For stakeholders, ISM 2.0 opens up opportunities across the three foundational pillars of the semiconductor supply chain.
MSMEs can expand their role by supplying components for advanced semiconductor equipment.
Materials producers gain opportunities by leveraging India’s reserves of chemicals, minerals, and gases needed in chipmaking. Service providers, from R&D and logistics firms to specialists in AI, big data, cloud computing, and IoT, stand to see rising demand for their expertise.
Smallcaps that align with ISM’s mission
Taking into account the focus on ancillary players, here’s a roundup of smallcap companies that align with ISM 2.0’s mission, and may benefit in the days ahead.
- Moschip Technologies: A semiconductor and system design firm specialising in turnkey ASICs (application-specific integrated circuits), mixed-signal IP, semiconductor and product engineering, and IoT solutions. Its offerings cater to diverse sectors including aerospace and defence, consumer electronics, automotive, medical devices, and networking & telecommunications. Moschip expands India’s chip design IP base and aligns with ISM’s push on product development & domestic IP.
- Inox India: The company provides solutions spanning the design, engineering, manufacturing, and installation of equipment and systems for cryogenic applications. Inox India is particularly known for its expertise in supplying cryogenic equipment, especially storage tanks.. Aligns with ISM 2.0 as their solutions are key to materials & gases logistics, supporting fabs & chemical suppliers.
- Tatva Chintan Pharma: The company manufactures a diverse portfolio of products that includes structure-directing agents, phase transfer catalysts, electrolyte salts for batteries, pharmaceutical and agrochemical intermediates, and other specialty chemicals. Tatva Chintan manufactures electronic-grade quaternary ammonium hydroxides, including tetramethylammonium hydroxide (TMAH) and tetrabutylammonium hydroxide (TBAOH)—chemistries widely used in photolithography development and other wafer processing steps.
Charging ahead
India is moving from being a chip assembler/buyer to becoming a full-fledged semiconductor ecosystem, handling design, manufacturing, materials, equipment, and packaging.
Emphasising SiC technology aligns India with global trends in EV, aerospace, and defense applications, giving strategic edge. The expanded DLI and ecosystem incentives will help democratise the sector, turning SMEs, equipment makers, and material suppliers into active stakeholders. In the days ahead, smallcap companies in this space will certainly be worth keeping an eye on.
Sources
Business Standard: ISM 2.0 to cover semiconductor ecosystem partners as well: Vaishnaw
Business Standard: Govt may bet on MSMEs to power silicon dreams
Business Standard: India on track to enter top 5 semicon league by 2032: Vaishnaw
PIB: SEMICON 2025 – Building the Next Semiconductor Powerhouse
Rediff: ISM 2.0 – Support for Semiconductor Ecosystem
Scanx: India Semiconductor Mission 2.0: Boosting Ancillary Ecosystem and Global Competitiveness
BIS Infotech: India’s Semiconductor 2.0 Mission focuses on SiC Wafers