ISM 2.0's ₹40,000 Crore Pivot to Equipment, Materials and IP

India's first wave of semiconductor policy bought fabs and packaging plants. Its second wave is trying to buy something harder. India Semiconductor Mission 2.0, announced in the Union Budget on 1 February 2026 with an outlay of ₹40,000 crore, deliberately shifts the centre of gravity from assembly and fabrication toward the equipment, materials, full-stack Indian IP, and R&D and training layers of the industry. The mission spans 13 projects across 7 states and sets a workforce target of 85,000 trained professionals over ten years. The bet is that the most defensible part of the chip economy is not the fab; it is the tooling and materials the fab cannot run without.

Why equipment and materials is the high-moat layer

Semiconductor capital equipment is one of the most concentrated and protected markets in technology. Lithography is effectively an ASML monopoly. Deposition and etch are dominated by Applied Materials, Lam Research and Tokyo Electron. These positions are durable because the tools encode decades of physics, process know-how and customer co-development that cannot be reverse-engineered quickly. The same holds for high-purity materials, the photoresists, specialty gases, ultra-pure chemicals and silicon substrates where a few suppliers hold qualified positions that customers are loath to change.

This is precisely why it is the right target. A country that only assembles chips remains dependent on foreign tools and materials for every wafer it touches; the value, and the leverage, sits upstream. Building domestic capability in equipment and materials is harder than standing up an OSAT line, but it deepens the ecosystem in a way that assembly alone never will, and it raises switching costs for everyone who buys from it.

The two anchor commitments

Two global suppliers give the strategy substance. Lam Research is committing over $1.2 billion (about ₹10,000 crore) to Karnataka, anchored at the planned KWIN City, for tool engineering and supply-chain development. Localising even a portion of a major etch and deposition vendor's engineering and component sourcing in India seeds a supplier network that future fabs can draw on.

Applied Materials is building its India Centre for Semiconductor Manufacturing (ICSM) in Bengaluru, a $400 million investment over four years that the company says is intended to seed more than $2 billion in cumulative impact and create 500 to 1,500 advanced-engineering jobs. Notably, this is an engineering and collaboration centre, not a wafer plant, which is consistent with ISM 2.0's thesis that the durable contribution is in tool development and process IP rather than another assembly footprint.

The investor read

For investors, ISM 2.0 reframes the Indian semiconductor opportunity. The first phase produced tangible, near-term assets (fabs and OSATs) that are relatively easy to value. This phase is a longer-duration, higher-quality bet: equipment and materials capability compounds, raises the ceiling on what the domestic ecosystem can support, and is far harder for competitors to replicate.

The caveats are equally clear. ₹40,000 crore is modest against the scale of global equipment R&D, where single firms spend billions annually. The 85,000-professional and $2 billion-impact figures are ten-year targets, not committed outcomes, and the hardest layers are precisely the ones where India starts furthest behind. The presence of Lam and Applied is the signal that matters most: when the toolmakers invest, they are betting that India's fab and packaging base will grow large enough to be worth supplying, which is the ecosystem flywheel ISM 2.0 is engineered to start.