Semiconductor Manufacturing in India 2026: Incentives, Best States and How to Set Up a Plant

1 October 2026 · 6 min read

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Semiconductor incentives in India: ISM 1.0 and ISM 2.0
Supplier ecosystem, cost and talent
Best states for semiconductor manufacturing in India
Why Japanese, European and American semiconductor companies should set up in India
How to set up a semiconductor plant in India
Frequently asked questions
Sources

India now offers some of the world's most generous support for semiconductor manufacturing: up to 50% of project cost from the central government, plus a further 40–60% of that amount from leading states. Twelve chip projects worth about ₹1.64 lakh crore are approved, and two began commercial production in 2026. For fabs, OSAT/ATMP units, equipment makers and materials suppliers, the window to build early in India is open now.

Semiconductor incentives in India: ISM 1.0 and ISM 2.0

India Semiconductor Mission (ISM) 1.0, approved in December 2021 with ₹76,000 crore, funded the first wave. It offers up to 50% fiscal support for fabs, compound-semiconductor fabs, display fabs and packaging units.

ISM 2.0, announced in the 2026–27 Union Budget, widens the net. The Finance Ministry's expenditure committee cleared an outlay of about ₹1.25 lakh crore, well above ISM 1.0. Its focus areas include:

Equipment, materials, chemicals and gases — incentives for firms that make and service what fabs consume
Chip design and IP — seed capital, tools and deployment-linked support for startups and MSMEs
Advanced manufacturing — a roadmap toward 3 nm and 2 nm nodes
Research and skills — industry-led training and applied R&D centres

The Design Linked Incentive (DLI) scheme runs alongside, supporting 24 design projects so far, with 23 tape-outs completed.

Who has already committed: Micron (ATMP, Sanand), Tata Electronics (fab, Dholera), a further OSAT unit in Sanand, plus OSAT and compound-semiconductor units in Assam, Odisha and elsewhere.

Supplier ecosystem, cost and talent

Market pull. India's semiconductor market is projected to reach US$100–110 billion by 2030, driven by phones, autos, telecom, industrial equipment and defence. A local plant sells into rising domestic demand, not only exports.

Supplier gaps are the opportunity. India's first fabs and OSATs still import most process tools, specialty gases, wet chemicals, substrates and spare parts. ISM 2.0 now pays to localise exactly these inputs, so early suppliers gain anchor customers and incentive support at once.

Cost. Stacked subsidies can cover a majority of eligible capex; Micron's Sanand plant received up to 70% of project cost from central and state support combined. Subsidised land, power and water lower running costs further.

Talent. India has a deep chip-design workforce built by global design centres in Bengaluru, Hyderabad and Noida. The scarcer skill is fab and OSAT operations — technicians, process engineers and equipment specialists — which ISM 2.0 addresses with training centres and which specialist talent partners can build.

Best states for semiconductor manufacturing in India

State top-ups decide much of a project's economics.

State	State top-up	Other support	Best suited for
Andhra Pradesh	60% of central incentive	Power and training support	OSAT, electronics-linked units
Uttar Pradesh	50% of central incentive	SGST relief up to 10 years, land rebates, R&D and CoE grants	Packaging near Noida electronics
Tamil Nadu	50% of central incentive	Concessional land, stamp-duty and electricity-tax waivers, training	OSAT near Chennai EMS cluster
Odisha	50% of central incentive	Tax and duty exemptions, concessional land, VLSI skilling	Silicon carbide, advanced packaging
Gujarat	40% of central incentive	Up to 75% land subsidy on first 200 acres at Dholera; power at about ₹2/unit for 10 years	Fabs and large OSAT (Sanand, Dholera)
Assam	Utility-led	50% power-tariff cut for 10 years; low-cost water	OSAT (Jagiroad)
Karnataka	ESDM capital subsidy	R&D grants, stamp-duty and power concessions	Design centres, equipment service

Gujarat's lower percentage is offset by the land-power-water bundle and the most mature fab cluster. Confirm current terms with each state's investment agency.

Why Japanese, European and American semiconductor companies should set up in India

Japanese semiconductor companies

Japan leads the world in semiconductor equipment, materials, wafers and specialty chemicals, which are exactly the categories ISM 2.0 now incentivises. India ranked as Japanese firms' most promising medium-term destination for the fourth straight year in JBIC's FY2025 survey. The July 2026 India–Japan summit recorded about US$12.5 billion in private commitments, with semiconductors a named priority.

Where to play: service and spares hubs for fab and OSAT tools, specialty gases and chemicals, substrates and packaging materials, cleanroom and utility systems.

European semiconductor companies

European firms are strong in power semiconductors, silicon carbide, lithography ecosystems and automotive chips. India's EV, renewable-energy and industrial markets need exactly these parts. The India–EU FTA, expected to take effect in 2027, will ease trade in equipment and components between the two markets.

Where to play: power and SiC devices (Odisha already hosts India's first commercial SiC fab, with a UK technology partner), automotive-grade packaging, metrology and process equipment.

American semiconductor companies

Micron's Sanand plant set the template for US firms: large subsidy support, a fast build and access to India's design talent. US companies already run many of India's largest chip-design centres, so adding manufacturing, test or packaging keeps engineering and production close. The US–India interim trade framework of February 2026 lowered tariffs on Indian goods, though a final agreement is still in negotiation.

Where to play: memory and advanced packaging, test operations linked to existing design centres, data-centre and AI hardware supply chains.

How to set up a semiconductor plant in India

Define the unit type. Fab, compound fab, OSAT/ATMP, equipment service hub or materials plant; each has a different scheme and approval route.
Stack the incentives. Apply under ISM 2.0 (or DLI for design) and negotiate the state top-up, land, power and water terms in parallel.
Pick the cluster. Sit near customers: Sanand–Dholera for fab and OSAT supply, Chennai or Noida for electronics-linked packaging, Bhubaneswar for SiC.
Build the workforce early. Recruit process engineers, equipment technicians and quality staff 12–18 months before first production.
Plan localisation. Domestic sourcing of chemicals, gases and spares is increasingly tied to incentive eligibility.

How NirjiX helps

NirjiX is a single accountable integrator for semiconductor companies entering India. We combine market entry, incentive and site advisory with semiconductor workforce build-out, from OSAT technicians to engineering leadership, across Tokyo, Singapore and Pune.

Talk to the NirjiX semiconductor team

Frequently asked questions

What incentives does India offer for semiconductor manufacturing?

The central government covers up to 50% of eligible project cost under the India Semiconductor Mission, and states add 40–60% of that amount plus land, power and tax benefits.

What is India Semiconductor Mission 2.0?

ISM 2.0 is the second phase of India's chip programme, with about ₹1.25 lakh crore cleared. It extends support to equipment, materials, gases, design IP and skills, not only fabs.

Which state is best for a semiconductor plant in India?

Gujarat leads for fabs and large OSAT; Tamil Nadu, Uttar Pradesh and Andhra Pradesh offer higher percentage top-ups; Odisha suits silicon carbide; Assam suits OSAT.

Can foreign companies get semiconductor subsidies in India?

Yes. Micron, a US company, received central and state support for its Sanand plant. Foreign-owned Indian entities qualify under the same scheme rules.

Does India have semiconductor talent?

India has a large chip-design workforce. Fab and OSAT operations talent is scarcer and is best built through targeted hiring and training ahead of production.