Government eyes co-investment with venture capitalists to make larger funds available under ISM 2.0

New Delhi: The second phase of the India Semiconductor Mission or ISM 2.0 will make a larger quantum of funds available by co-investing with venture capitalists (VCs) and attract more companies across the value chain to establish a substantial presence in the ecosystem, a top government official said.

"This time we are looking at the entire range, starting from equipment, materials, gases, chemicals, and everything needed for the semiconductor ecosystem to be fully established in the country. So the idea is to have a substantial presence in the ecosystem," S Krishnan, Secretary, Ministry of Electronics & IT (MeitY) told ET.

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Last month, the Union Cabinet, headed by Prime Minister Narendra Modi approved Semicon 2.0 (India Semiconductor Mission 2.0) with a whopping budget outlay of ₹1,27,500 crore to deepen domestic design, manufacturing, and supply chain resilience.

"One of the objectives is the design element. The design-linked incentive (DLI) scheme is strong, but the funding size needed for a design to be truly successful is an issue. So we have redesigned the scheme. In addition to the initial grant, we are looking at ways to support further development," the official said.

"We co-invest so that a larger pool of funds becomes available and more companies will come in."

Further, Krishnan said that beyond funding, the government wants to actually get into crowd investment. "What happens in the US is that venture capitalists come in to make investments in this scheme and put money in that area. So what we want to do now is to also make sure that the government co-invests with venture capitalists who will come to some extent."

The Centre wants to co-invest with entities selected on commercial principles by well-known funds, including deep tech funds, which are funded by entities such as the Small Industries Development Bank of India (SIDBI) or a fund of funds. "We will get a whitelist of funds and then we will proceed."

The latest scheme is aimed to holistically build the semiconductor ecosystem across multiple areas such as design, machines and materials, research and development (R&D), talent development, setting up more fabs, and further strengthening the assembly, testing, marking, and packaging (ATMP) and outsourced semiconductor assembly and test (OSAT) segments.

Krishnan further said that previously only MSMEs and startups were eligible, but in the new edition, the government wants to open wider to domestic Indian companies and entities set up in India by host companies.

"Now we want to open it up for Overseas Citizen of India (OCI) cardholders simply because many of them are actually returning to India, have previously worked in these sectors, and have the experience, so we want to use that," the senior official added.

"The other area is a significantly stepped up research and development (R&D) element. In that, our intent is that we sort of find a way by which we push forward on the next stages where we are interested in technology such as below 28 nanometers."

In addition, skill development, according to him, is an important component of the ISM 2.0 program.

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The latest version of ISM aims to position India as a reliable and competitive player in the semiconductor value chain worldwide by advancing the goals of Atmanirbhar Bharat (self-reliant India) and Make in India–Make for the World.

In the previous version of the prestigious scheme, 24 semiconductor design projects from start-ups and MSMEs were approved for financial support, while 105 start-ups were granted access to industry-standard Electronic Design Automation (EDA) tools.

In the Union Budget FY 2026–27, a provision of ₹1,000 crore has been allocated for India Semiconductor Mission (ISM) 2.0 to expand domestic chip-making capabilities, local intellectual property, and fund research initiatives.

In the ISM 1.0 scheme, as many as 12 manufacturing units have been approved with a cumulative investment of more than Rs.1.64 lakh crores. Of these, three companies - Micron, Kaynes and CG Semi—have already started commercial production.