Integrated circuits are essential for digital infrastructure and energy-efficient systems, yet their production is highly resource-intensive. Fabrication plants require high volumes of ultra-pure water and uninterrupted supplies of electricity, which puts a significant pressure on ecological systems and national resource management. India is clearly gaining on the economic front by transitioning from being largely a consumer of semiconductors to positioning itself as a global hub for design and manufacturing. However, the central challenge remains: as India scales its industrial capacity, it risks placing significant strain on its environmental targets. This becomes increasingly difficult to ignore, especially when India’s domestic semiconductor market is projected to reach USD 100–110 billion by 2030.

 

The government is achieving significant economic growth and technological self-reliance through large-scale capital investments and the establishment of manufacturing hubs. However, this rapid industrialisation poses an impending threat to the nation’s environmental targets. This makes it even more essential to strike a balance where economic objectives do not come at the cost of the sustainability targets.

 

The Union Budget 2026–27 introduced the India Semiconductor Mission (ISM) 2.0, marking a shift in strategy from a foundational ecosystem development into advanced industrial consolidation of the semiconductor value chain. India’s focus is no longer limited to assembly and packaging, it now extends to the domestic production of semiconductor equipment, materials, and indigenous intellectual property. 

 

To support this transition, for the fiscal year 2026-27, the government has allocated a specific provision of ₹1,000 crore for ISM 2.0 within an overall financial outlay of ₹8,000 crore for the modified semiconductor and display manufacturing programme. This fiscal framework aims to strengthen the supply chain by incentivising the production of critical inputs such as chemicals, gases, and minerals. 

 

Looking ahead, the strategic roadmap includes the objective of achieving the advanced 3-nanometre and 2-nanometre technology nodes to position India among the world’s leading semiconductor nations by 2035. Furthermore, the budget aims to support 30 design companies through the Design Linked Incentive (DLI) scheme and facilitate the establishment of an additional semiconductor fabrication unit. By prioritising direct capital subsidies over long-term operational concessions, the budget addresses the high initial costs involved with chip manufacturing. Together, these measures are intended to accelerate capital investment, increase domestic capabilities and establish India as a primary supplier in the global technology value chain. 

 

Although the economic reasons of India Semiconductor Mission (ISM) 2.0 are quite obvious, the analysis of Economic Survey 2025-26 reveals a radical imbalance between the Indian industrial aspirations and climate resilience commitments. The growth of the semiconductor ecosystem (especially by allocating additional funds to the Electronics Components Manufacturing Scheme) poses ecological hazards that are not sufficiently addressed by the Union Budget 2026.

 

The greatest direct menace of semiconductor fabrication is the vast water footprint. Current fabrication factories (fabs) are extremely active consumers of ultra-pure water (UPW) and have very lengthy treatment systems where 1,000 gallons of municipal water is required to manufacture only 1,000 gallons of UPW. This introduces one of the most severe resource conflicts, as the major beneficiaries of ISM 2.0 the state of Gujarat or Maharashtra is already listed by the Central Ground Water Board as water-stressed ones. 

 

More importantly, despite the allotted ₹40,000 crore in the Budget 2026 to the manufacturing of the components, there are no specifications on producing the infrastructure (desalination or wastewater recycling on the industrial scale) (Government of India, 2026). The lack of an individual budgetary line to Zero Liquid Discharge (ZLD) technologies contributes to the fact that there is an increasing pressure at the state level to provide millions of liters of fresh water a day to such fabs, which may negatively affect the local aquifer loss and the value of industrial output in comparison with the security of agricultural and domestic water. 

 

In addition to water, the net energy requirement of chip production is a hardship to the India Net Zero 2070. Semiconductor fabrication is a heavy industry in Scope 1 and 2, with a continuous load of power demands that can often be hundreds of mega units per plant. The Economic Survey has reported an increase in industrial power demand; although the Budget 2026 has not yet gone as far as to enforce a renewable energy (RE) purchasing pledge on clients of ISM. When these nascent manufacturing clusters use the existing coal-dominated grid, the amount of carbon footprint will indeed be significant above the global averages, thus nullifying the sustainability of the resulting products.

 

Furthermore, the shift toward upstream component manufacturing under ISM 2.0 introduces complex hazardous waste streams. The production process utilizes per- and polyfluoroalkyl substances (PFAS), often termed forever chemicals, along with potent greenhouse gases like nitrogen trifluoride (NF3) which has a Global Warming Potential (GWP) thousands of times higher than CO2. The current fiscal policy incentivizes the domestic production of these consumables but offers vague regulatory oversight regarding their disposal. In the absence of strict Green Fab conditionalities attached to the PLI disbursements, India risks importing the pollution of the semiconductor value chain without the requisite waste management infrastructure to contain it. 

 

The global Industry is going through a booming change, due to the overreliance on technology in a world of heightened risk. There are geopolitical risks, supply chain disruptions, and competition among major economies which may threaten the National Sovereignty of a country.

 

India has been identified as a country that has the production capabilities to produce Semiconductors but also at the risk of its technological sovereignty. India is working to establish itself as a "trusted and reliable partner" in this global change, using initiatives like the India Semiconductor Mission (ISM) which allows the development of industry and provides a full stack value chain to develop. The shift is also hastened due to the “China Plus One” strategy, which allows the development of multiple hubs that can meet the global demand. A highly beneficial program for the boost of developing countries making it ideal for governments and multinationals. The overdependence on a single hub has increased the geopolitical risk and makes supply of Semiconductors volatile. 

 

For India, building its own semiconductor manufacturing and Outsourced Semiconductor Assembly and Test (OSAT) infrastructure is essential for digital independence. The OSAT is determined to provide the bridge between design and finishing, including assembly, packing and shipping. The emergence and creation of local capability centers have led to the advancement of the ‘Made in India’ Program. Technology is a necessity now, and a country like India needs to reduce its dependence on foreign supply. Development of indigenous microprocessor as DHRUV64 and state-of-the-art facility for 3mn chips put India at the forefront of the global Semiconductor supply chain.

 

The Union Budget has reinforced this push with the announcement of Semiconductor Mission 2.0. They have allocated Rs 100 billion specifically for ISM 2026-27, thereby maintaining a budget of Rs 800 billion for the entire semiconductor industry. The government plans to construct 3mn and 2mn node factories which would significantly increase the production capabilities on top of the 28nm and 30nm technological node production centers. This will make India a world-leading manufacturing nation by 2030.