The Centre will retain the pari passu model in the upcoming phase of the India Semiconductor Mission (ISM 2.0), signalling a preference for tighter fiscal management even as it doubles down on building a domestic chip ecosystem.

Pari passu, a Latin term meaning “on equal footing”, refers here to a funding structure in which government incentives are released in proportion to a company’s own capital expenditure. Under ISM 1.0, the Centre committed to providing 50 per cent fiscal support for project costs, but disbursed this support only as firms invested their own money. In effect, public funds move step-by-step with private spending, rather than being front-loaded.

Officials said this mechanism is central to better fiscal discipline. By linking subsidies to actual project progress, it reduces the risk of cost overruns, delays, or idle allocations, and ensures that companies have tangible skin in the game. “The pari passu mode will continue…that is the backbone of the India Semiconductor Mission and because of the pari passu route, companies are seriously investing in this sector and global companies too are joining hands with them,” a senior official said.

The structure has underwritten the first phase of the mission, launched in 2021 with an outlay of ₹76,000 crore. As of May 5, 2026, cumulative investment commitments have reached ₹1.64 lakh crore, surpassing the original target of ₹1.60 lakh crore, an outcome the government attributes in part to the credibility and discipline imposed by the co-investment model.

At the same time, the policy is embedded in a broader strategic push to reduce India’s dependence on imported semiconductors. Officials indicated that, once domestic fabrication and packaging facilities become fully operational, the government is considering measures to nudge or mandate procurement of ‘Made in India’ chips across sectors. The long-term objective is to build a resilient supply chain that can serve demand from electronics, automobiles, industrial equipment and home appliances within the country, while also insulating India from global supply disruptions.

Progress on capacity creation continues under ISM 1.0. The Union Cabinet has approved two additional projects, by Crystal Matrix Limited and Suchi Semicon, bringing the total number of sanctioned projects to 12. These include the country’s first commercial Mini/Micro-LED display facility based on Gallium Nitride (GaN) technology and a semiconductor packaging unit, both to be set up in Gujarat.

The mission itself was conceived as the next step after India’s success in localising smartphone assembly, moving up the value chain into core electronics manufacturing. Beyond fabs and packaging, the Centre’s long-term plan is to develop a comprehensive semiconductor and display manufacturing ecosystem, including design capabilities, in consultation with ministries, industry, and academia.

That ambition is set to expand under ISM 2.0, announced by Finance minister Nirmala Sitharaman in the Union Budget earlier this year. The next phase will focus on producing semiconductor equipment and materials, building full-stack Indian intellectual property, and strengthening supply chains.

By retaining the pari passu route, the government is effectively signalling that even as it scales up its industrial policy, it intends to anchor spending to verifiable investment and execution, using fiscal discipline as the foundation for a capital-intensive, strategically critical sector.

Published on May 6, 2026