Budget 2026: ISM 2.0 Unlocks Gains for Chip Equipment & Material Suppliers

Introduction: A New Chapter for Indian Semiconductors

Union Budget 2026, presented by Finance Minister Nirmala Sitharaman, has decisively shifted the focus of India's technology ambitions. The announcement of the India Semiconductor Mission 2.0 (ISM 2.0) marks a strategic pivot from merely attracting chip fabrication units to building the entire upstream value chain. This new phase aims to cultivate a robust domestic ecosystem for semiconductor equipment, materials, and design, creating a new set of beneficiaries in India's quest for self-reliance.

Building on the foundation of the ₹76,000 crore ISM 1.0, which focused on establishing chip fabrication and assembly plants, ISM 2.0 widens the scope significantly. "Building on this, we will launch ISM 2.0 to produce equipment and materials, design full-stack Indian IP, and fortify supply chains," the Finance Minister stated, signaling a clear intent to move up the global technology ladder.

A Strategic Shift Beyond Fabs

The core objective of ISM 2.0 is to address the critical gaps in India's electronics ecosystem. While the first phase successfully attracted proposals for foundries and assembly units, the country remains almost entirely dependent on imports for the sophisticated machinery, high-purity chemicals, and specialized materials required to run these facilities. ISM 2.0 is designed to onshore these capabilities, reducing long-term import dependency and enhancing supply chain resilience. This move is crucial for creating sustainable, high-value manufacturing and positioning India as a globally competitive semiconductor hub.

Direct Boost for Equipment and Capital Goods

The budget lays a multi-pronged foundation to support domestic equipment manufacturing. The primary driver is ISM 2.0's explicit goal to "produce equipment." This is further supported by related policy announcements that strengthen the broader capital goods sector. The Finance Minister proposed the establishment of high-tech tool rooms by central public sector enterprises (CPSEs) at two locations. These centers will function as automated service bureaus to locally design, test, and manufacture high-precision components, which are essential for building complex semiconductor machinery. Additionally, a new scheme for construction and infrastructure equipment (CIE) will bolster the domestic manufacturing of technologically advanced machinery, creating a stronger industrial base for all forms of capital goods production.

Securing the Materials Supply Chain

A self-reliant semiconductor industry is impossible without a secure supply of critical materials. Budget 2026 addresses this through two landmark initiatives:

1. Rare Earth Corridors: The government will support the mineral-rich states of Odisha, Kerala, Andhra Pradesh, and Tamil Nadu in establishing dedicated rare earth corridors. These corridors will integrate mining, processing, research, and manufacturing. Rare earth elements are vital for producing permanent magnets used in various high-tech equipment, including those in the semiconductor industry.

2. Dedicated Chemical Parks: A new scheme will be launched to support states in establishing three dedicated chemical parks through a cluster-based, plug-and-play model. Semiconductor fabrication requires a steady supply of ultra-pure chemicals and industrial gases. Creating domestic capacity for these materials is a critical step in de-risking the supply chain and reducing reliance on imports.

Bolstering the Broader Electronics Ecosystem

Complementing the semiconductor-specific push, the budget also significantly increased the outlay for the Electronics Components Manufacturing Scheme (ECMS) from ₹22,919 crore to ₹40,000 crore. The Finance Minister noted that the scheme, launched in April 2025, has already attracted investment commitments double its initial targets. This enhanced allocation will accelerate the domestic production of components like PCBs, camera modules, and displays. A thriving component ecosystem creates scaled-up demand for the raw materials, chemicals, and equipment that ISM 2.0 aims to promote, fostering a virtuous cycle of growth.

Summary of Key Budget Announcements

Policy Initiative	Key Focus Area	Financial Outlay/Support
India Semiconductor Mission (ISM) 2.0	Equipment, Materials, IP Design, Supply Chains	Builds on ISM 1.0's ₹76,000 Crore base
Electronics Components Mfg. Scheme (ECMS)	Deepen component manufacturing	Increased to ₹40,000 Crore
Rare Earth Corridors	Mining, Processing, R&D, Manufacturing	Support for 4 mineral-rich states
Dedicated Chemical Parks	Domestic chemical production	Support for 3 states via challenge route
High-Tech Tool Rooms	High-precision component manufacturing	Established by CPSEs at two locations

Market and Investor Impact

The announcements have been received positively by the market, signaling investor confidence in the long-term vision for India's electronics sector. While EMS companies saw immediate stock gains, the true impact of ISM 2.0 will unfold over the long term. It opens up a new frontier of investment opportunities beyond fab operators and ATMP units. Companies in specialty chemicals, industrial gases, precision engineering, mining, and capital goods manufacturing are now positioned as key beneficiaries of this policy direction. This strategic deepening of the value chain is expected to attract significant new investments and foster the growth of new industrial champions.

Industry Reaction and Analysis

Industry leaders and analysts have lauded the budget's comprehensive approach. Ashok Chandak, President of the India Electronics and Semiconductor Association (IESA), noted that the expanded focus beyond fabs—covering equipment, materials, chemicals, and R&D—will help reduce import dependence and build an end-to-end ecosystem. Similarly, analysts have pointed out that the creation of rare earth corridors is a strategic move to counter global supply chain monopolies and build self-reliance in critical materials essential for high-tech industries, from electronics to defense and clean energy.

Conclusion: Building a Self-Reliant Future

Union Budget 2026 marks a pivotal moment for India's technology sector. With ISM 2.0 and a suite of supporting policies, the government has laid out a clear roadmap to move beyond assembly and build a comprehensive, self-reliant semiconductor ecosystem. The focus on developing domestic capabilities in high-value equipment and materials is a critical and necessary step. For investors, this opens up a new landscape of opportunities in the upstream supply chain, which will be the engine of India's next phase of technological growth.