Chips, phones, and the Viksit Bharat playbook

This article was published in The Economic Times Online on July 27 2026. Please click here to read the article.

On July 15, the Union Cabinet approved two schemes totalling Rs 1.9 lakh crore in a single sitting: the Rs 62,500 crore Mobile Phone Manufacturing Scheme (MPMS) and the Rs 1.27 lakh crore India Semiconductor Mission 2.0 (ISM 2.0). The same week also saw a fresh battery storage tender open under the Advanced Chemistry Cells (ACC) PLI scheme, and a separate rare earth magnet scheme head into its final round of bidding. Taken together, it is one of the more coordinated policy pushes India’s manufacturing sector has seen in recent years, and it says something specific about where the country’s industrial ambitions are headed next.

The first wave of production-linked incentive (PLI) schemes, launched in 2020, had a clear and narrow job: prove that India could manufacture at scale. It worked. India is now the world’s second-largest mobile phone manufacturer; the majority of phones sold domestically are made here, and smartphones were India’s top export category in 2025. Semiconductors moved from zero to a functioning pipeline, with 12 approved projects worth over Rs 1.64 lakh crore, and a few plants already commissioned and running.

MPMS and ISM 2.0 are built on that base, but they are solving a different problem. Scale alone will not be enough. India still depends heavily on imported components, equipment, and design for a large share of its assembly operations. These two schemes are a direct response to that gap, and they mark a shift from rewarding volume to rewarding value addition, which is really the central idea behind the Union government’s ambitions of Viksit Bharat@2047: not just making things in India but owning more of what goes into making them.

MPMS succeeds PLI-LSEM, whose tenure ended on March 31 this year. The incentive design has been reworked in a telling way. There is a base incentive of 2.25-5 per cent on eligible sales. On top of that, companies can earn up to 1.5 per cent more for sourcing key components and sub-assemblies domestically. A further incentive of around 3 per cent is also available for product design, R&D, and Indian-brand manufacturing under this scheme. In other words, the scheme no longer just asks how many phones a company can ship. It asks how much of that phone was actually built, designed, and sourced in India. That is a meaningfully harder bar to clear, and it is squarely aimed at deepening the domestic component ecosystem, from PCBs to displays to batteries, rather than just adding more assembly lines.

SM 2.0’s headline number is large, but the more consequential change is structural: the scheme's tenure has been extended from five years to 12. Semiconductor fabs are capital-intensive, slow-payback investments, and a five-year policy runway was never going to be credible to the kind of long-term capital this sector needs. A 12-year commitment changes that conversation.

The scheme is also organised around six pillars, spanning chip design, fabrication, packaging and testing (ATMP/OSAT), equipment and materials, R&D, and skilling and supply-chain resilience. The equipment and materials pillar is the most significant addition. India’s semiconductor build-out so far has been strong on fabs and packaging, but almost entirely dependent on imported equipment, gases, and chemicals. ISM 2.0 offers targeted capex support in this segment, which is where the real white space for new investment now sits.

MPMS is clearly the next step to PLI-LSEM, where it incentivises not only the manufacturing of mobile phones but also rewards more in-country value addition through sourcing and design. ISM 2.0 has anchored the building of the entire ecosystem for semiconductors as its main shift over ISM 1.0, even though it has similarities to the emphasis on manufacturing at scale. A similar ecosystem-building focus is also required for MPMS in the next wave, which will help develop suppliers of components and design houses. For companies and investors, eligibility under this new generation of schemes increasingly rewards where value is added, not just where the final product carries a ‘Made in India’ label. Conversations that used to centre on plant location and capacity now need to account for domestic value-addition thresholds, component ecosystem depth, and the credibility of design and R&D commitments.

Both MPMS and ISM 2.0 missions have communicated their intent and what capabilities they aspire to build for India. To translate intent into real national capability building, a strong execution structure and tight governance will be needed. For example, in ISM 2.0, there should be focused committees for each of the pillars to ensure the right deployment of allocated funds and that the right capability is built proportionately. An overall national project management office is another important body that should be instituted, which will track progress against milestones, ensure right participation in each of the pillars, and ease out coordination among different ministries/government bodies where required.