Cabinet clears Rs 1.9 Lakh crore push for chip, mobile phone manufacturing
The Union Cabinet approved significant new schemes for semiconductor and mobile phone manufacturing. The India Semiconductor Mission's second phase will receive ₹1.27 lakh crore for development. A new ₹62,500 crore scheme will boost mobile phone production and domestic sourcing.
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Context
The Union Cabinet has approved a comprehensive financial push of ₹1.9 lakh crore to boost semiconductor and mobile phone manufacturing in India. This includes the launch of the (ISM) 2.0 and a new (MPMS), succeeding the previous (PLI) scheme for mobile phones. The initiatives aim to deepen domestic value addition, foster an indigenous design ecosystem, and position India as a global electronics manufacturing hub.
UPSC Perspectives
Economic
This policy pivot represents a shift from basic assembly towards deep domestic value addition and self-reliance in the critical electronics supply chain. The new specifically targets increasing domestic value addition from the current 24% to 40-45%. The scheme is designed to address a critical weakness in India's current manufacturing landscape—heavy reliance on imported components, particularly from China. By offering tiered incentives—base incentives (2.25%-5%), plus bonuses for domestic sourcing (1.5%) and building Indian brands with indigenous R&D (3%)—the government is attempting to create a comprehensive ecosystem, not just assembly lines. Furthermore, the (ISM) 2.0 expands its coverage across the entire value chain, from raw materials like silicon ingots to (OSAT) facilities. The reduction in the maximum subsidy for fabs (from 50% to 40% for silicon, 35% for others) indicates the government's belief that initial capacity has been proven, allowing funds to be spread across a wider array of ancillary segments like materials and equipment, thereby building a more robust and complete supply chain.
Governance
The transition from the previous scheme to the MPMS highlights an evolutionary approach to industrial policy and adaptive governance. The government is demonstrating an ability to analyze the outcomes of previous schemes—such as the massive success in mobile production (₹11.6 lakh crore) and exports (₹6.4 lakh crore)—and recalibrate the incentive structures to address remaining gaps. The previous PLI was criticized for primarily boosting final assembly while component manufacturing lagged. The conditionalities in the new scheme, which align with industry demands for scale and intellectual property ownership, show responsive policy-making. Furthermore, the role of strategic bodies like the and the in selecting strategic chips under ISM 2.0 underscores the integration of national security objectives into economic policy, recognizing semiconductors as a critical geopolitical asset. The data provided on direct tax (₹25,000 crore) and GST (₹3 lakh crore) collected versus the incentives disbursed (₹19,090 crore) under the old scheme is a classic metric used to justify the fiscal prudence of such large-scale subsidy programs.
Strategic and Technological
The push for semiconductor manufacturing is deeply intertwined with technological sovereignty and strategic autonomy. Semiconductors are foundational to modern technology, from smartphones to defense systems and AI. The global shortage and supply chain vulnerabilities exposed during recent geopolitical tensions have made localized production an imperative. ISM 2.0's focus on non-traditional compound materials and strategic chips (selected by the NSA) reflects a long-term vision to secure critical technologies. Furthermore, the focus on R&D, design capabilities, and the development of a talent pipeline addresses a significant global bottleneck—the shortage of skilled workers in the semiconductor industry. By encouraging chip design by Indian students and incentivizing domestic brands to develop their own IP, the policy aims to move India up the technology value chain, transitioning from a mere consumer or assembler to an innovator and creator of core technologies, aligning with the broader and initiatives.