Budget 2026: Govt Revises ECMS Outlay to ₹40,000 Cr, Allots ₹1,500 Cr This Year
By Sanjana Gupta ·
India’s semiconductor strategy in the Union Budget 2026-27 shifts from capacity creation to a product mindset, as announced by finance minister Nirmala Sitharaman on February 1.
The government is soon to move to a new phase of the India Semiconductor Mission (ISM), allocating a total of ₹1,000 crore. Presenting the Budget, Sitharaman said the government will build on the first phase of the programme and “launch ISM 2.0 to produce equipment and materials, design full-stack Indian IP and fortify supply chains”.
Last year, the Budget allocation for technologies like semiconductors under the electronics and information technology ministry (MeitY) stood at ₹7,000 crore, which was revised to a ₹4,300 crore expenditure.
This year, the allocation for the modified programme for the development of semiconductors and the display manufacturing ecosystem in India has been raised to ₹8,000 crore. Additionally, allocation for the PLI scheme under MeitY has dropped from ₹9,000 crore last year to ₹1,527 crore this year.
In 2026-27, the focus shifts to ecosystem depth, with new schemes for equipment, materials, training, research, and critical inputs, rather than a standalone fab-linked outlay. The finance minister also said the government will “focus on industry-led research and training centres and develop technology and a skilled workforce”.
Alongside semiconductors, the electronics components manufacturing scheme, launched in April 2025 for a six-year period through the financial year 2031-32, saw a higher outlay this year.
The scheme had an original allocation of ₹22,919 crore, and the government has now proposed to increase the outlay to ₹40,000 crore to build on this momentum. Under this scheme, the allocation for this financial year stands at ₹1500 crore.
Sitharaman also announced a logistics and tax support measure for electronics supply chains.
“To harness the efficiency of just-in-time logistics for electronic manufacturing, I propose safe harbour measures for non-residents for component warehousing in a bonded warehouse at a profit margin of 2% of the invoice value,” she said.
This means overseas firms that store electronic components in bonded warehouses in India will be taxed at a fixed, small profit margin, resulting in an effective tax rate of about 0.7%, which would make India more competitive for electronics logistics compared with other countries.
Despite these measures, concerns remain about the lack of financial clarity around ISM 2.0, the absence of higher funding for fab and manufacturing scale, and the lack of a dedicated product creation initiative. These gaps could slow down the pace of value addition in India’s electronics ecosystem.
Rare Earths, Chemicals & Manufacturing
The Budget also links semiconductor and electronics manufacturing to critical materials and industrial infrastructure. A scheme for rare-earth permanent magnets was launched in November 2025.
The government will now support Odisha, Kerala, Andhra Pradesh, and Tamil Nadu in establishing dedicated rare earth corridors. These corridors will promote mining, processing, research and manufacturing to enhance domestic production and reduce import dependence.
To further reduce import dependence, the government also proposed a scheme to support states in establishing three chemical parks. These parks will be created through a challenge route on a cluster-based, plug-and-play model.
Sitharaman said strong capital goods capability remains central to productivity and quality across sectors. As part of this push, high-tech tool rooms will be set up by central public sector enterprises at two locations.
These facilities will operate as digitally enabled automated service bureaus to design, test and manufacture high-precision components at scale and at lower cost.
The government said the broader industrial strategy will focus on scaling manufacturing in seven strategic and frontier sectors, creating champion MSMEs and strengthening long-term security and supply resilience.