After Tata, India eyes second chip fab by 2031 with at least $2bn investment

India has launched Semicon 2.0 with a ₹1.28 trillion budget to fund a second commercial silicon fabrication plant by 2031 alongside its first display fab. 

New Delhi: The IT ministry is inviting global technology companies to build a second commercial chip fabrication plant, as part of a push to establish the country as a major semiconductor hub while reducing direct government subsidies. Under a fresh programme known as Semicon 2.0, New Delhi will offer up to 40% in cash incentives for a modern facility operating on standard 12-inch wafers, tightening eligibility rules to target established manufacturers capable of deploying at least ₹20,000 crore ($2.1 billion) of their own capital.

The new strategy signals growing confidence among Indian officials that a strengthening supply chain will attract serious investors even with lower state hand-outs. The original incentive plan, which covered half of the project costs from the Union government, brought in one commercial silicon fab—a joint venture involving Tata Electronics in Gujarat. With the total budget now expanded to ₹1.28 trillion ($15 billion), the government is broadening its scope to include the country’s first display-chip plant, specialized compound semiconductors, and critical raw materials.

To qualify for the secondary silicon plant, applicants must possess production-grade licensed technology and have annual revenues of at least ₹7,500 crore by fiscal 2026. IT minister Ashwini Vaishnaw said during a briefing that the policy emphasizes project quality and supply security over volume, arguing that foundational investments made over the past five years have significantly reduced market-entry risks for foreign partners.

Key Takeaways

• India targets a second commercial silicon chip factory to be operational by 2031.
• Applicants must commit over $2.1 billion in equity and show strong revenues.
• Central cash incentives for silicon fabs decrease to 40% under 2.0.
• The overall scheme budget expands to ₹1.28 trillion across six pillars.
• The programme introduces display manufacturing support and matching equity for design startups.

Alongside hardware manufacturing, New Delhi is changing its chip-design support by introducing joint equity investments to help domestic startups scale up. Under the revised framework, the government will match private equity funding without an initial upper cap, while allowing founders to buy back state-held shares once their businesses become profitable. This approach aims to secure long-term physical manufacturing capacity and indigenous intellectual property in critical tech sectors.

Through its ‘Chips Act’, US offers capex subsidy of 5-15% to companies setting up fabs and associated semiconductor projects—albeit with more available capital at $39 billion for incentives, and an additional 25% in credits on tax. China, on the other hand, incentivizes homegrown firms with equity-backed support. A July 2021 assessment by global body Semiconductor Industry Association pegged China as offering over 40% of a project’s cost as equity-linked funding support.

Increasing ambitions

ISM’s first tranche, with a total incentive outlay of ₹76,000 crore, offered cash incentives of 50% for chip projects, which rose to 70-75% when state incentives were included. Semicon 2.0, with a larger outlay of ₹1.28 trillion, offers up to 40% in cash incentives for setting up a chip fab, and up to 35% for other areas.

Speaking at a media roundtable on Monday, Vaishnaw told reporters that the Centre’s focus “will not be on quantity but the quality of projects that will objectively add to India’s strategic autonomy.” The second pure-play silicon ‘fab’ will be one of multiple projects under Semicon 2.0’s six ‘pillars’, which also include the establishment of India’s first display chip manufacturing facility.

Vaishnaw also expressed confidence that a lower cash incentive outlay in Semicon 2.0, compared with ISM 1.0, will not deter investors.

“When we pursued ISM 1.0, stakeholders were not sure about how serious our intentions were. Today, companies are seeing a supply chain being developed, and are certain that India is very serious in investing in setting up a semiconductor ecosystem. The incentives outlay being offered, therefore, will not deter serious investors, who will gain from all the work that has happened here in the past five years,” Vaishnaw said.

Focus on first display fab

A second key area of focus, said S. Krishnan, secretary at Meity, will be setting up India’s first display chip fab. “We so far do not have a display fab in the country, so that will make for one clear area of focus under Semicon 2.0,” the official added. Display fab projects in India will receive 35% of their project costs as cash incentives from the Centre, in addition to the state government's sops. Companies applying must invest at least ₹10,000 crore ($1 billion) of their own capital in the project, and must have reported at least ₹5,000 crore ($525 million) in revenue as of FY26.

“All of the incentives planned by Meity are in line with mature geographies, where semiconductor industries have been incentivized by their governments. Meity’s Semicon 2.0 is following such well-established global principles to propose incentives of a similar quantum. The key focus of the government is on structural and strategic autonomy. India must have its own chipmaking capability, and Semicon 2.0 will look to further reinforce the same,” Krishnan added.

Semicon 2.0 was announced by Meity on 15 July. The Centre has not announced any sector-specific breakdown of the total incentives, but has stated that a greater focus will be placed on promoting indigenous chip design patents in the country. Meity did not comment on how much its new design-linked incentive (DLI) scheme, which this time covers large companies as well as startups, would amount to in net incentive outlay.

A senior official with direct knowledge of the matter told Mint that the total DLI outlay “will be substantially more as there is co-investment also, as has been indicated.”

Under the notification for the new DLI scheme, startups will receive grants of up to ₹15 crore as early-stage seed capital. Further, the Centre will also offer equity-based funds to chip startups that raise private equity funding rounds, with the government stating that it will match the funds that the startup raises from private investors.

On 16 July, Amitesh Sinha, chief executive of ISM, told Mint in an interview that the Centre will not impose an upper cap on the co-investment model, but will allow startups to buy back the Centre’s investment once they start generating revenue.

About the Author

Shouvik has been tracking the rise and shifts of India’s technology ecosystem for over a decade, across print, broadcast and web-first platforms. He's been a tinkerer of machines and PCs since childhood, a habit he was thrilled to convert into his profession. This has led him to fascinating experiences of technologies around the world, which is what keeps him hooked to his job.<br><br>Shouvik likes to believe that he is one of the few technology journalists in India who can also code. He has also been writing about the rise of AI well before it became a household name, and has met some of the most fascinating people over the years through his work.<br><br>Shouvik writes about AI, Big Tech, data centres, electronics, semiconductors, cybersecurity, gaming, cryptocurrencies, and consumer technologies. He is most fond of the stories he has written during his time here at Mint, for which he also writes 'Transformer', a weekly technology newsletter, and hosts 'Techcetra', a weekly technology podcast.<br><br>Outside of work, Shouvik spends most of his time with Pixel, whom he believes is the world's best dog. He is also an avid reader, a toy collector, a gamer and a frequent traveller.