India’s 2026 Chip Moment Now Rests With the Budget
By Sanjana Gupta ·
With the Union Budget 2026–27 approaching, the semiconductor sector is again pressing for policy clarity, scale, and execution, in the hope of moving India from capacity creation to sustained manufacturing outcomes.
The past twelve months have seen steady movement across India’s semiconductor ecosystem. Backend manufacturing facilities expanded, with Odisha, Punjab, and Andhra Pradesh securing a combined outlay of ₹4,600 crore for semiconductor units. Chip design startups, including Netrasemi, Mindgrove Technologies, and FermionIC Design, raised significant capital, while new players entered markets such as silicon ingot systems, power semiconductors, and application-specific chips.
The India Semiconductor Mission, launched in 2021 with a ₹76,000 crore outlay, continued approving projects across states, including a project by HCL and Foxconn, and the first end-to-end OSAT (outsourced semiconductor assembly and test) pilot line facility.
Yet the gap between ambition and delivery remains wide, especially as global chip supply chains become constrained by trade risks and tariff pressures.
As policymakers prepare the next Budget, industry leaders argue that incremental funding alone will not suffice. Instead, they are seeking sharper procurement rules, tax reform, and ecosystem support that addresses talent, infrastructure, and early demand.
Time for Execution
According to an Endiya Partners’ report, India employs nearly 150,000 semiconductor design engineers, representing close to one-fifth of global design talent. However, fabrication capacity still accounts for around 0.5% of global output, reinforcing the need to bridge design depth with manufacturing scale.
Government-backed initiatives like the Design Linked Incentive (DLI) scheme have supported tape-outs and early commercialisation, but founders continue to face long revenue cycles.
Hareesh Chandrasekar, CEO and co-founder of AGNIT Semiconductors, tells AIM, “As India looks to accelerate its semiconductor journey, Budget 2026 is a chance to move from intent to impact. A stronger ISM 2.0 backed by funding beyond the earlier $10 billion outlay can catalyse the next phase of fab and manufacturing growth.”
Chandrasekar also stresses the need for demand creation. “Equally important is positioning the government as the first customer by mandating a share of public procurement from startups with over 50% indigenous content, creating early demand for deep tech innovation,” he adds.
Vijay Muktamath, founder and CEO of fabless semiconductor startup Sensesemi Technologies, in an earlier interaction with AIM, noted that access to EDA (electronic design automation) tools enabled by the DLI scheme was a decisive shift, as their high costs had made semiconductor design difficult for early-stage companies. He also acknowledged improvements in the DLI approval timeline and that reimbursement cycles have been faster than expected. “The turnaround time for your reimbursement is hardly one week,” he said.
However, he also cautioned that DLI support does not automatically translate into venture capital backing, as semiconductor startups require larger seed rounds due to high talent costs and extended timelines before revenue.
Ashwini Vaishnaw, the union minister for electronics and IT, recently noted that startups supported under the scheme have attracted nearly ₹430 crore in venture capital funding. Of the 24 startups participating in the DLI programme, 14 have secured venture capital funding.
Taxation Friction
Beyond capital support, industry leaders point to structural barriers that limit startup growth. Employee stock options, procurement access, and indirect taxes remain persistent concerns for deep tech founders.
Ajai Chowdhry, co-founder of HCL and the founder and chairman of EPIC Foundation, flags ESOP taxation as a deterrent. “In sharp contrast to other mature startup ecosystems, India’s dual taxation model on ESOPs—taxing employees at exercise and again at sale—creates significant friction that is actively pushing Indian startups and founders toward offshore relocation.”
Citing defence innovation programmes, he notes that structured procurement paired with funding can scale startups faster. “A cross-ministry startup procurement framework is urgently needed to unlock promising ventures serving critical national demands,” he says.
Taxation also affects semiconductor manufacturing. Industry executives continue to seek rationalised GST rates for domestically designed chips and relief on upfront input taxes, which tie up capital during long development cycles.
Trade, Compute And Data
Trade policy may shape India’s semiconductor outlook in the coming years. The recently signed India–EU Free Trade Agreement has drawn attention from electronics and chip manufacturers due to its potential impact on equipment costs and export access.
Ashok Chandak, president of the India Electronics and Semiconductor Association, describes the agreement as a cost lever. “By eliminating or significantly reducing duties on high-end European machinery and upstream components—which typically account for nearly 70+% of semiconductor fab capex—the agreement potentially could lower project costs and improve the global competitiveness of India’s fabs and OSAT units,” he notes.
With India’s electronics exports to the EU at around $12 billion, Chandak says preferential access could support scale. “Preferential access to the EU’s nearly $750 billion electronics market creates a powerful runway for growth in line with India’s strategy to boost electronics exports,” he said.
He also proposes aligning quality standards and recognising certifications across markets to cut qualification timelines and help Indian-made products meet European requirements from the outset.
Chandak added that the agreement could support cooperation in artificial intelligence, clean technologies, and semiconductors, helping India target $400 billion in electronics manufacturing by 2030.
Semiconductors and data infrastructure remain tightly linked, especially as AI adoption gathers pace across sectors. Data centre operators argue that chip policy must align with compute access, energy availability, and predictable taxation.
Sunil Gupta, co-founder, CEO and managing director of Yotta Data Services, notes the demand for domestic compute is growing. “As AI adoption gathers pace across industries, Indian startups, enterprises, and researchers increasingly need access to sovereign, high-performance compute to develop, train, and deploy AI domestically while staying globally competitive.”
Looking ahead, Gupta calls for targeted incentives. “The Budget should prioritise fiscal incentives for sovereign AI and data-centre infrastructure by lowering import duties on GPUs and critical hardware and extending GST relief on AI and cloud services,” he adds.
As India targets advanced nodes in the next decade, including a stated ambition to produce 3 nm chips by 2032, industry voices caution that timelines depend on execution. Infrastructure readiness, skilled manufacturing talent, and reliable utilities will shape outcomes more than announcements.
For this, Gupta emphasises the need for a stable policy. “Streamlined tax structures and predictable incentives will be key to improving ease of doing business and attracting long-term investment into digital infrastructure.”
Semiconductor industry stakeholders believe that only bold measures can ensure that India builds its chips.