Semicon 2.0: the Machines and Materials thresholds

What the notification says

Semicon 2.0 was notified in the Gazette of India on 31 August 2026 and divides the scheme into six pillars and ten categories. Pillar 2, “Machines and Materials”, is Category 4: the semiconductor manufacturing ecosystem. It is the first Indian semiconductor scheme aimed at the firms that supply a chip plant rather than at the firms that own one.

The India Semiconductor Mission, the scheme’s nodal agency, states the programme’s fiscal outlay as ₹1,27,500 crore across the six pillars. The guidelines for implementing this pillar, along with the fabs and ATMP/OSAT pillars, followed on 16 September 2026.

What each sub-vertical has to put up

The notification lists four eligible sub-verticals under Pillar 2, each with a minimum capital investment, a minimum revenue record and the share of capital expenditure the government will pay.

The revenue figure is not this year’s turnover. It has to have been met in any one of the three financial years before the year the application goes in, and the revenue of group companies counts towards it. A group company, in the guidelines, is one that can exercise 26% or more of the voting rights in the other or appoint more than half its board.

The applicant itself has to be a private limited company or a public limited company, so a partnership or a proprietorship cannot apply in its own name. Every applicant except a test and characterisation facility is expected to own or hold licensed technology for the unit it proposes.

The government’s 30% is released pari-passu, which is a condition and not a formality: the nodal agency pays its pro rata share only after the applicant has mobilised its own corresponding share into a no-lien account.

Why ₹300 crore still matters to a ₹30 crore shop

Read the table alone and the pillar looks shut to almost every engineering firm in Gujarat, Maharashtra or Rajasthan. The opening is in the fourth row.

Alongside the 30% of capital expenditure, a firm making or assembling semiconductor equipment also gets a production-linked incentive calculated on the bill-of-materials value it sources from domestic manufacturers, for five years from FY 2028-29, capped at half its eligible capital expenditure. The notification lists rates of 10, 8, 6, 4 and 2 per cent without stating which rate applies in which year.

Domestic sourcing is defined in the guidelines, and the definition is the part worth reading twice: assemblies, sub-assemblies, parts and components manufactured within India, using either domestically sourced or imported raw materials, for use in manufacturing the finished product. The raw material may be imported. The manufacturing has to happen here.

A machine shop that turns, mills or fabricates a sub-assembly, a frame or a set of fixtures for an approved equipment maker sits inside that definition even when its steel does not. The incentive is paid to the equipment maker, not to the shop, but it is paid in proportion to what the equipment maker buys in India, which is a harder commercial argument than the goodwill that usually backs a local-sourcing pitch. That is a narrower and more useful mechanism than the fourteen sector production-linked incentive schemes, which pay on incremental sales and say nothing about where the inputs come from.

Apply first, spend after

The sequence matters more than the percentage, and the guidelines state it twice. Capital expenditure incurred before the nodal agency acknowledges a complete application is not reimbursed. A company may begin investing after the acknowledgement date at its own risk, and that spending can be counted if the project is later approved. The nodal agency aims to issue the acknowledgement within 45 days of a complete application.

What counts as capital expenditure is wider than a reader might expect: building, clean rooms, plant, machinery, equipment and associated utilities, plus tools, dies, moulds, jigs and fixtures with their parts and spares, and the packaging, freight, insurance, erection and commissioning that come with them. Associated utilities run to captive power and effluent treatment, clean rooms, air curtains, temperature and air-quality control, compressed air, water and power supply, storage and distribution for chemicals and gases, and the servers, software and ERP tied to manufacturing. Used, second-hand and refurbished machinery counts as well, provided it has at least five years of residual life when the asset is transferred.

What does not count: land and its development, temporary site structures and site offices, technology transfer, interest during construction, and R&D cost. Neither does the extra cost of a longer warranty, an annual maintenance contract or consumables.

What is not settled yet

Applications go through the India Semiconductor Mission’s portal, and the notification says the scheme is open for an initial three years without naming a closing date. For this pillar the Union Cabinet is the competent authority for approving fiscal support, so an approval is a Cabinet decision and not a ministry one. Project duration is fixed case by case, preferably up to six years, and the scheme is to be appraised at mid-term after three years of implementation.

One caution for anyone reading secondary coverage: several figures now circulating against the Semicon 2.0 name belong to the fab pillar or to a budget provision for the mission, not to this pillar. The four thresholds above are the ones the notification sets for Machines and Materials.

EngiNewsIndia will report the first approvals under this pillar when the Cabinet accords them, with the rest of the policy and scheme reporting. The nearest plant of the kind the pillar is written to feed is the Sanand OSAT plant, which began commercial production in July 2026; what an assembly and test plant buys is largely what this pillar now pays an equipment maker to source in India.