Union Budget 2026 Impact: Can ISM 2.0 Power RRP Semiconductor’s OSAT Pivot?

The Union Budget 2026, presented by Finance Minister Nirmala Sitharaman, has placed a significant emphasis on the high-tech manufacturing sector, specifically through the launch of the India Semiconductor Mission (ISM) 2.0. For RRP Semiconductor Limited, a company that recently pivoted from real estate to the semiconductor space, these policy shifts represent a critical juncture. As the company works to establish Maharashtra’s first Outsourced Semiconductor Assembly and Test (OSAT) plant, the budget’s focus on equipment, materials, and full-stack Indian IP provides a new regulatory and financial framework for its operations.

ISM 2.0: A Strategic Second Window

The transition from ISM 1.0 to ISM 2.0 is the most significant takeaway for the semiconductor industry. While RRP Semiconductor’s previous applications under the initial mission did not meet specific parameters for approval, the expanded scope of ISM 2.0 offers a renewed opportunity. The new mission aims to not only support fabrication but also to produce equipment and materials locally. For a company like RRP, which is focusing on semiconductor packaging and wafer fabrication, the industry-led research and training centres proposed in the budget could help bridge the technical expertise gap that has previously hindered its progress.

Massive Outlay for Electronics Components

The Finance Minister announced a substantial increase in the outlay for the electronics components manufacturing scheme. Originally launched in April 2025 with ₹22,919 crore, the budget has now proposed increasing this to ₹40,000 crore. This 74% increase in funding is designed to support the entire value chain. RRP Semiconductor, which is positioning itself as a provider of comprehensive solutions in crystal growth and packaging, stands to benefit from this larger pool of incentives, provided it can align its operational milestones with the government’s rigorous evaluation criteria.

Impact on OSAT and ATMP Operations

Semiconductor manufacturing is notoriously capital-intensive. RRP’s focus on OSAT (Outsourced Semiconductor Assembly and Test) is a faster route to market compared to full-scale fabrication. The budget’s push for domestic manufacturing capacity and reduced critical import dependencies aligns with RRP’s stated mission. The company’s facility in Mahape, Navi Mumbai, is designed for high-precision production, and the budget’s support for high-tech tool rooms and digitally enabled automated service bureaus could provide the necessary ecosystem support for such facilities.

Taxation and Fiscal Incentives

The Union Budget 2026 introduced the Income Tax Act 2025, effective from April 1, 2026. A key highlight is the reduction of the Minimum Alternate Tax (MAT) rate from 15% to 14%. For RRP Semiconductor, which reported a net loss of ₹71.5 million in the September 2025 quarter, the long-term benefit of lower MAT and the ability to set off brought-forward MAT credit will be crucial as the company moves toward commercial production and eventual profitability.

Key Budgetary Allocations for the Semiconductor Sector

Addressing the Capital and Technology Gap

Semiconductor manufacturing requires sustained funding over decades. The budget’s proposal to set up an Infrastructure Risk Guarantee Fund could be a game-changer for private developers in this space. By providing partial credit guarantees to lenders, the government is attempting to lower the cost of debt for high-risk, high-tech projects. RRP, which has faced scrutiny over its financial strength and small employee base, will need to leverage such instruments to secure the long-term capital required for its ambitious OSAT plant.

Market Sentiment vs. Fundamental Reality

The RRP Semiconductor stock has been a market anomaly, witnessing a meteoric rise that has often detached from its current financial fundamentals. The India Semiconductor Mission leadership has previously clarified that no formal approval was extended to RRP under the first phase. However, the Budget 2026 focus on transparency and rule-based automated processes for incentives may provide a clearer roadmap for the company to gain official backing, provided it meets the new, stringent parameters of ISM 2.0.

Conclusion

Union Budget 2026 provides the semiconductor industry with the "scale and stamina" required for long-term growth. For RRP Semiconductor, the path forward involves transitioning from a speculative market favourite to a fundamentally sound industrial player. The increased outlay for components and the launch of ISM 2.0 provide the tools, but the company’s success will ultimately depend on its ability to execute its OSAT strategy, secure technology tie-ups, and meet the government's rigorous performance-linked milestones. Investors should remain focused on the company's upcoming commercial production timelines and any formal notifications regarding incentive disbursements under the new schemes.