Cabinet clears Rs 1.9 lakh crore for chip & mobile manufacturing; govt to take royalty from firms
The Union Cabinet approved two electronics-sector schemes on July 15, 2026: Semicon 2.0, with an outlay of about Rs 1.27 lakh crore for semiconductor design and manufacturing, and a new Mobile Phone Manufacturing Scheme (MPMS), with an outlay of about Rs 62,500 crore — a combined outlay of roughly Rs 1.9 lakh crore.
The MPMS replaces the earlier Production Linked Incentive (PLI) Scheme for Large Scale Electronics Manufacturing, which has expired, and will run from FY 2026-27 to FY 2030-31.
Under Semicon 2.0, the financing model changes from the grants-only structure of the earlier programme: startups and MSMEs continue to receive grants plus equity co-investment, while larger companies move to a royalty-financing or equity co-investment structure, under which the government recovers a share of revenue from chip sales instead of disbursing outright grants.
A high-level expert committee is to be constituted under Semicon 2.0 to identify chips needed for strategic and defence applications, to be developed through consortia of Indian companies with multinational and academic partners.
The two schemes together are projected to draw investment of about Rs 4 lakh crore and generate production worth about Rs 2 lakh crore and exports worth about Rs 1 lakh crore.
India Semiconductor Mission (ISM) and Semicon 2.0 as its Second Phase
The India Semiconductor Mission was approved by the Union Cabinet in December 2021 with a financial outlay of Rs 76,000 crore, administered by the Ministry of Electronics and Information Technology (MeitY), to build a complete semiconductor and display manufacturing ecosystem in India through fiscal support of up to 50% of project cost for fabrication units, compound semiconductor facilities, and assembly/test/packaging units. Semicon 2.0 is structured as the next phase of this mission, adding a sixth pillar — talent development — to the original five (design, fabrication, materials/equipment, assembly-testing-packaging, and research and development).
Key Details
- ISM 1.0 (2021): Rs 76,000 crore outlay under MeitY; approved 10 projects worth a cumulative Rs 1.60 lakh crore investment across six states by December 2025
- Semicon 2.0 (2026): Rs 1.27 lakh crore outlay, structured on six pillars including chip design, machines and materials, fabrication, assembly and packaging, R&D, and talent development
- Eligibility for Semicon 2.0 support is restricted to companies owned by Indian citizens or Overseas Citizens of India (OCI)
- Existing operational units under the earlier mission include facilities at Sanand, alongside other assembly and testing sites
Semicon 2.0 does not replace ISM but extends it with an additional financing track (royalty/equity co-investment) aimed at attracting larger, capital-intensive fabrication investments that the original grants-only model struggled to fully mobilise.
Production Linked Incentive (PLI) Architecture and the Shift to Royalty Financing
The Production Linked Incentive Scheme, launched in 2020 across 14 strategic sectors with a combined outlay of about Rs 1.97 lakh crore, is India's principal industrial-policy instrument for output-linked (rather than investment-linked) subsidies — firms receive incentives calculated as a percentage of incremental sales, not merely for committing capital. The Mobile Phone Manufacturing Scheme continues this output-linked design for phones, while Semicon 2.0 introduces a distinct royalty-financing model for semiconductor fabs, where the government's return is tied to a revenue share from actual chip sales rather than a one-time capital grant.
Key Details
- PLI (2020): 14 sectors including electronics/IT hardware, telecom, pharmaceuticals, solar modules, and auto components; cumulative investment over Rs 2.16 lakh crore and exports over Rs 8.3 lakh crore reported as of December 2025
- MPMS incentive structure: 2.25% to 5% on eligible sales (highest rates for Indian-owned brands), plus up to 1.5% additional incentive for domestic component sourcing and up to 3% for design and R&D undertaken by Indian brands
- MPMS targets: production of Rs 39 lakh crore and exports of Rs 15 lakh crore over its five-year term, against Rs 22 lakh crore production and Rs 7.5 lakh crore exports achieved under the earlier electronics PLI; about 60,000 direct jobs are expected
- Semicon 2.0's royalty/equity model is a departure from the pure-subsidy design used in PLI, aligning fiscal support more closely with public equity or revenue-participation instruments used in some venture-financing frameworks
The Mobile Phone Manufacturing Scheme is a direct successor to the PLI logic (output-linked incentives), while Semicon 2.0's royalty structure represents a policy shift toward the government sharing in the upside of the capital-intensive semiconductor sector rather than only bearing subsidy cost.
Design Linked Incentive (DLI) Scheme and Chip Design Ecosystem
Alongside ISM in December 2021, the Ministry of Electronics and Information Technology launched the Design Linked Incentive (DLI) Scheme to build India's semiconductor chip-design capability, addressing the "fabless" segment of the industry — companies that design chips without owning fabrication plants. The scheme has two components: a Product Design-Linked Incentive reimbursing up to 50% of eligible design expenditure, and a Deployment-Linked Incentive offering 4–6% of net sales turnover over five years for successfully deployed designs.
Key Details
- Nodal implementing agency: Centre for Development of Advanced Computing (C-DAC)
- Duration: five years from launch, covering Integrated Circuits, Chipsets, Systems-on-Chip (SoCs) and semiconductor IP cores
- As of the most recent reporting, DLI-supported projects had produced 16 tape-outs and 6 ASIC chips and engaged over 1,000 design engineers
- Semicon 2.0's strategic-chips track (for defence applications) builds on this design ecosystem, routing indigenous design capability toward chips with security and supply-chain-trust requirements
The strategic chips track announced under Semicon 2.0 depends on the fabless design capacity built up under the DLI scheme since 2021, extending that capability toward defence and security use cases through Indian-company-led consortia.
- Cabinet approval date: July 15, 2026
- Semicon 2.0 outlay: approximately Rs 1.27 lakh crore
- Mobile Phone Manufacturing Scheme (MPMS) outlay: approximately Rs 62,500 crore
- Combined projected investment: approximately Rs 4 lakh crore; projected production: Rs 2 lakh crore; projected exports: Rs 1 lakh crore
- MPMS incentive rate: 2.25%–5% on eligible sales, plus up to 1.5% for domestic component sourcing and up to 3% for design/R&D
- MPMS duration: FY 2026-27 to FY 2030-31; targets Rs 39 lakh crore production and Rs 15 lakh crore exports (vs Rs 22 lakh crore and Rs 7.5 lakh crore under the earlier PLI)
- ISM 1.0 (2021) outlay: Rs 76,000 crore; nodal ministry: MeitY
- PLI Scheme (2020) overall outlay across 14 sectors: approximately Rs 1.97 lakh crore