Cabinet approves ₹1.9 tn push for chips, mobiles to deepen local manufacturing

New Delhi: The Union cabinet on Wednesday unveiled a new phase of India’s manufacturing strategy, approving incentive programmes for semiconductors, mobile phones and fertilizers that shift policy focus from simply attracting factories to building domestic technology, brands and value addition.

At the centre of the package is Semicon 2.0, a ₹1.27 trillion programme aimed at helping Indian companies design chips, generate patents and develop local research capabilities. The cabinet also cleared a ₹62,500 crore mobile phone manufacturing scheme that rewards companies for sourcing more components locally and gives Indian brands additional incentives to invest in product design and R&D.

Separately, the cabinet approved a new investment policy for gas-based urea plants to reduce import dependence, besides clearing two highway projects in Uttar Pradesh worth ₹25,446 crore and railway projects worth ₹3,907 crore.

Semiconductor push

Semicon 2.0 targets ₹4 trillion in investments by FY31 and marks a strategic shift in India’s semiconductor policy—from primarily attracting fabrication facilities to building an end-to-end ecosystem, with greater emphasis on chip design, research and intellectual property.

Among the biggest changes are substantially higher support for Indian chip designers and expanded eligibility for large private companies to invest in semiconductor research.

At a media roundtable following the announcement, Union IT minister Ashwini Vaishnaw said design incentives under Semicon 2.0 will be significantly larger, and “will also be open to large private conglomerates—so that India’s private sector can invest in chip R&D at scale”.

Under the first phase of the India Semiconductor Mission, the government had approved 12 projects with investments exceeding ₹1.64 trillion.

Industry executives said the changes address one of the biggest hurdles facing India’s semiconductor ambitions—the high cost of developing and commercialising indigenous chip designs.

According to Ankush Wadhera, managing director and partner and India leader for semiconductors at Boston Consulting Group, India has historically not had fabs and packaging ecosystems, forcing startups to rely on overseas facilities for prototyping at high cost and with long waiting periods.

“With Semicon 2.0, the government is focusing on deepening the upstream value chain, and the goal is to create a robust local ecosystem of chip facilities that allow Indian companies to test, develop and more rapidly tape-out their designs at significantly lower cost,” he said.

Wadhera added that this cost and time benefit “will allow India to finally and realistically push the IP and product play emanating from within the country, and generate private patents and significantly capture a higher value share in the semiconductor value chain—which will be geopolitically crucial for the country”.

Domestic push for mobiles

The government’s new mobile phone manufacturing scheme similarly shifts attention from assembling devices to producing more of their components in India.

According to Vaishnaw, the Centre is targeting domestic value addition of more than 45%, up from just over 20% today. The Centre did not publish the exact contours of the new scheme, with Vaishnaw stating that the specific figures would be published “within 15-20 days”.

“The goal with the new schemes will be to create domestic companies in the long run that can compete at par with global giants, and make India a preferred destination for electronics manufacturing,” Vaishnaw said.

Key targets include ₹39 trillion in mobile phone production and ₹15 trillion in mobile exports by FY31. The first production-linked incentive (PLI) scheme for mobiles, with roughly ₹39,000 crore in incentives, generated ₹11.6 trillion worth of mobile phone production in India. The country exported ₹2.6 trillion worth of mobiles in FY26.

Mobile phone localization for electronics manufacturing services (EMS) firms in India — which include the likes of Tata Electronics and Dixon Technologies making devices for companies such as Apple and Vivo — will also come under the scheme, with the caveat of generating a target local value on top of target sales achieved each fiscal year.

Under the new scheme, manufacturers will receive incentives of 2.25-5% on eligible sales of mobile phones produced in India. Companies sourcing key components and sub-assemblies domestically will be eligible for an additional incentive of up to 1.5%, while Indian brands investing in product design and R&D can claim a further 3% incentive on eligible sales.

Ajai Chowdhry, co-founder of HCL and industry consultancy body Epic Foundation, hailed the additional incentivization of local component sourcing of mobile phones.

“There is a very clear direction from the government to incentivize design and R&D for Indian brands, which have been left behind for years and overtaken by Chinese competitors. This is a decisive step towards correcting that imbalance,” Chowdhry added.

Urea local manufacturing push

In a major push towards self-reliance in urea manufacturing, the cabinet today approved the National Investment Policy for Urea-2026 for Atmanirbhar Bharat (NIPU-2026).

According to Vaishnaw, India still meets about 10 million tonnes (mt) of urea demand through imports, and about 30 mt through local manufacturing. Demand is growing at about 5% each year.

The policy is designed to attract fresh investments for setting up gas-based urea manufacturing units in India. It addresses a policy vacuum that has existed since October 2019, when the previous New Investment Policy (NIP)-2012 expired.

Under the 2012 policy, six new urea units were established—four through joint ventures of nominated public sector undertakings (PSUs), and two by private entities. In total, India currently operates 33 urea manufacturing units with a total reassessed and installed capacity of 26.9 million tonnes (mt).

The minister said the Department of Fertilizers has received various proposals for new plants and NIPU-2026 provides the necessary framework to ramp up indigenous production and reduce import dependence.

The policy mandates the clear separation of fixed and variable costs, and introduces a viable return on equity (RoE) band of 12-16%. To protect investments from currency fluctuations, fixed costs will be converted into Indian rupees after a four-year period, based on prevailing exchange rates.

Experts said by encouraging significant new investments in domestic urea manufacturing, the policy has the potential to reduce import dependence, enhance supply reliability, and create a more sustainable foundation for India’s food production ecosystem.

“The proposed capacity addition, coupled with long-term policy support and assured offtake mechanisms, sends a strong signal to industry and investors alike that India is committed to building self-reliance in critical agricultural inputs,” said Satyam Shivam Sundaram, partner, government and public sector at EY India. “Every million tonne of domestic urea capacity that replaces imports can roughly save $300-500 million annually in forex.”