Budget 2026: India Semiconductor Mission 2.0 and the ₹40,000 Crore PLI Boost

The Union Budget 2026-27 has signaled a major expansion of India's semiconductor ambitions. Finance Minister Nirmala Sitharaman announced the launch of India Semiconductor Mission (ISM) 2.0, which aims to move the country beyond assembly and testing into the core areas of chip design, equipment manufacturing, and material supply. This policy shift is backed by a significant increase in financial outlays, particularly for the electronics component manufacturing ecosystem.

The ₹40,000 Crore Incentive Surge for Components

A central pillar of the Budget announcement is the massive increase in the outlay for the Electronics Component Manufacturing Scheme. The government has raised the incentive pool to ₹40,000 crore, nearly doubling the previous allocation of approximately ₹22,000 crore. This move follows a strong industry response where investment commitments had already reached double the initial targets. By expanding this pool, the government intends to support a wider range of companies involved in producing printed circuit boards (PCBs), camera modules, and other critical sub-assemblies.

Transitioning to India Semiconductor Mission 2.0

While ISM 1.0 focused heavily on attracting Outsourced Semiconductor Assembly and Test (OSAT) facilities, ISM 2.0 represents a structural shift toward backward integration. The new mission will prioritize the production of semiconductor manufacturing equipment and materials. Furthermore, there is a clear emphasis on developing full-stack Indian Intellectual Property (IP) and chip design. This transition is intended to reduce the industry's reliance on foreign technology and build a more resilient domestic supply chain.

Budgetary Allocations for the Semiconductor Ecosystem

The government has significantly stepped up its direct spending on the semiconductor and display manufacturing ecosystem. For the fiscal year 2026-27, the allocation has been increased to ₹8,000 crore, compared to ₹4,300 crore in the previous year. This funding is earmarked for the Modified Programme for Development of Semiconductors, which includes support for compound semiconductors, silicon photonics, and sensors.

Impact on Listed EMS and Semiconductor Stocks

The expanded incentive framework is expected to benefit several listed players in the Electronics Manufacturing Services (EMS) and semiconductor-adjacent sectors. Companies such as Dixon Technologies, Kaynes Technology, and Syrma SGS are positioned as early beneficiaries. Dixon Technologies, for instance, has already commenced production of camera modules and plans to enter display fabrication. Similarly, Kaynes Technology is ramping up its OSAT operations in Sanand. Other players like Amber Enterprises and PG Electroplast are also expected to gain from the increased focus on component localization.

Market Reaction and Valuation Trends

The stock market responded with mixed but generally constructive moves following the Budget. While some heavyweights like Bharat Electronics (BEL) and ABB India saw minor corrections, others like CG Power and Tata Elxsi gained up to 5 percent. Analysts note that while valuations in the sector remain elevated-with many stocks trading between 30x and 50x earnings-the sustained policy support provides long-term earnings visibility. Some stocks, like Amber Enterprises, have already seen corrections of 40-45 percent from their peaks, bringing their forward valuations to more reasonable levels.

Strategic Focus on Rare Earth Corridors

In a move to secure the raw materials necessary for high-tech manufacturing, the Finance Minister proposed the establishment of dedicated rare earth corridors. These corridors will be located in mineral-rich states including Odisha, Kerala, Andhra Pradesh, and Tamil Nadu. The initiative aims to promote the mining, processing, and manufacturing of rare earth permanent magnets, which are essential for various electronic and semiconductor applications. This is part of a broader strategy to reduce import dependency on critical minerals.

Infrastructure and Research Centers

To support the technical requirements of ISM 2.0, the government plans to establish industry-led research and training centers. These centers will focus on developing technology and a skilled workforce to bridge the talent gap in the semiconductor industry. Additionally, high-tech tool rooms will be established at two locations by central public sector enterprises. These digitally enabled bureaus will locally design, test, and manufacture high-precision components at scale, further strengthening the domestic capital goods capability.

Analysis of Long-Term Execution

Despite the positive policy environment, experts caution that the sector is still in its early execution phase. Meaningful revenue contributions from semiconductor operations are generally expected only from FY27 or FY28 onwards. The current focus is on building infrastructure and establishing pilot lines. Investors are advised to remain patient as the industry moves from relatively larger nodes toward advanced sub-10-nanometre chips over the coming decade.

Conclusion

The Union Budget 2026 has reinforced semiconductors as a core pillar of India's economic roadmap. By nearly doubling the incentives for components and launching ISM 2.0, the government has provided a clear multi-year strategy for the sector. While execution risks and high valuations remain near-term hurdles, the structural shift toward domestic IP and equipment manufacturing marks a significant milestone in India's journey to becoming a global electronics hub.