Semicon 2.0's Rulebook: What the Guidelines Add to the Gazette

Indian industrial schemes usually arrive in two parts. The gazette notification is the Cabinet’s decision: who is eligible, at what rate, and within what overall frame. The guidelines are the implementing ministry’s rulebook: forms, definitions, disbursement mechanics and penalties. Semicon 1.0 worked the same way. Its rulebook was a set of MeitY memoranda dated 30 December 2021, and those memoranda still define “eligible capex” inside Assam’s own semiconductor policy today. That matters for anyone counting on the state’s top-up, a point we return to at the end.

The Semicon 2.0 gazette pointed to its rulebook in a single line: “The scheme guidelines shall be issued by Ministry of Electronics and Information Technology (MeitY) separately” (Para 10). The 16 September document is that rulebook, but only for part of the scheme. It covers three of the six pillars:

Pillar	Categories	Covered by the 16 September guidelines?
1. Design	Cat. 1 to 3	No. Still pending
2. Machines and Materials	Cat. 4	Yes
3. More Fabs	Cat. 5 to 7	Yes
4. ATMP/OSAT	Cat. 8	Yes
5. R&D	Cat. 9	No. The gazette promises separate guidelines (Para 3.9.5)
6. Talent	Cat. 10	No. The gazette promises separate guidelines (Para 3.10.5)

Two rules frame everything that follows. First, the gazette wins any conflict: “In the event of any inconsistency between the scheme notification and these guidelines, the provisions of the scheme notification shall prevail” (Guidelines, Para 1.3). Second, the application window moved. The gazette said the scheme would be open for three years. The guidelines fix the start date: “3 years from the date of issuance of the Guidelines” (Para 7.1). For the manufacturing pillars, that pushes the close from the end of August 2029 to mid-September 2029. For design, R&D and talent, the clock arguably has not started yet.

Here is the path a Semicon 2.0 manufacturing application takes, with the time limit the guidelines attach to each step.

Step	What happens	Time limit in the guidelines
1	Register on the ISM portal; file the Annexure-1 form, the detailed project report and a ₹10 lakh + GST non-refundable fee	None
2	ISM screens the application and issues an acknowledgement	”Preferably within 45 days” (Para 7.3)
3	Technical and financial appraisal by ISM and its empanelled consultants	”Preferably within six months” of acknowledgement (Para 8.3)
4	ISM recommends to MeitY	None
5	MeitY places the proposal before the Union Cabinet	None. The Cabinet approves every manufacturing project, whatever its size (Para 2.10)
6	Approval letter, then a Fiscal Support Agreement and a No-Lien Account	None
7	Claims and pari-passu disbursement	Claims “as and when required” (Para 9.2)

Add up the two targets and a well-prepared applicant reaches MeitY in about seven and a half months at best. Even that assumes a clean file: the acknowledgement is issued only for a “complete application … after the initial screening” (Para 2.1), so every deficiency ISM flags pushes the start of the clock back. What happens after MeitY depends on the Cabinet’s calendar.

The appraisal itself is a bankability test, not a form check. ISM weighs “funds available with the company or raised for the project, offtake arrangements” alongside process technology and execution capacity (Para 8.1). The application form asks for a bank appraisal note where one exists, term-loan sanction letters, proof of equity brought in, off-take letters, a 20-year projected P&L and the technology partner’s own equity and committed off-take (Annexure-1). In practice, a project needs something close to financial closure before it can be approved. Central support does not substitute for it.

The design pillar runs faster by design. The gazette lets the MeitY Secretary approve design projects under ₹100 crore and the Minister approve those up to ₹500 crore (Para 7.3). A ₹60 crore specialty-gas plant, though, goes to the same Cabinet table as a ₹20,000 crore fab.

The date that matters most is the acknowledgement date, not approval. Any spending before ISM acknowledges the application is permanently ineligible (Para 4.2). Spending between acknowledgement and Cabinet approval counts, but at the promoter’s risk: “A Project company, at their own risk, may choose to start the investment after the date of acknowledgement” (Para 3.5). If the Cabinet says no, that money is gone. The practical result is that a promoter who signed purchase orders the week the gazette came out has already spent money the scheme will never reimburse.

Every Semicon 2.0 rate is a percentage of “eligible capital expenditure”. The gazette used the phrase without defining it. The guidelines define it, and the definition is broad.

What counts (Paras 2.7 and 4.6). Buildings, clean rooms, plant, machinery and equipment. Tools, dies, moulds, jigs and fixtures, with their spares. Packaging, freight, insurance, erection and commissioning. “Associated utilities”, which the guidelines spell out: captive power, effluent treatment, air curtains, temperature and air-quality control, compressed air, water and power supply, chemical and gas storage and distribution. Even manufacturing IT counts, “including servers, software and ERP solutions”. Used or refurbished equipment qualifies too, if it has at least five years of residual life when transferred.

What does not (Para 4.1). Three exclusions carry real money:

• Land and its development. Common across Indian schemes, and the reason state land concessions matter.
• Technology transfer. The gazette requires most Pillar 2, 3 and 4 applicants to “own or possess licensed technologies”. The guidelines then exclude technology-transfer cost from eligible capex. For everything except test facilities, the licence is mandatory, and the promoter pays for all of it.
• Interest during construction, and R&D cost. On a two-to-three-year fab or packaging build, capitalised interest is significant.

Warranty extensions, annual maintenance contracts and consumables bundled into an equipment price are also carved out.

The effect is that headline rates overstate what a project actually receives. Take an illustrative ₹100 crore semiconductor-chemicals plant under Pillar 2’s raw-materials row, which pays 30%:

Item	₹ crore	Eligible?
Plant, machinery, utilities, clean room, buildings	80	Yes
Land and site development	10	No
Process technology licence	6	No
Interest during construction	4	No
Total project cost	100	80 eligible
Central support at 30% of eligible capex	24

That is 24% of the total project cost, not 30%. The mix differs for every project, but the direction does not. Tax pushes the same way: Indian income-tax law has generally netted a capital subsidy off an asset’s cost, so the depreciation shield shrinks by the amount received. Promoters should model the subsidy net of that effect.

“Pari-passu” appeared in every manufacturing row of the gazette. The guidelines explain what it means in practice.

The project company opens a No-Lien Account at an Indian scheduled commercial bank. ISM, the company and the bank sign an agreement over it, and where a state government is also paying, the state signs too (Para 9.1). For each claim, the promoter deposits its own share of the spending, along with bank debt or other funds, into that account. Only then does ISM release the matching central share (Para 10.4). Money in the account can only be spent on eligible capex. The government never pays ahead of the promoter, so the equity and debt have to be in place first, and any gap between a promoter’s outlay and ISM’s matching release is bridge financing the promoter carries.

From the second instalment onwards, each claim needs a physical and financial progress report, an itemised list of equipment with suppliers, purchase orders, invoices and payment proof, a fixed-asset register certified by the statutory auditor, and an expenditure certificate (Para 10.6). Overpayments are clawed back from the next instalment. After completion, any excess is refunded with interest at the three-year SBI MCLR, compounded annually (Para 10.7).

Security. The project company gives the Centre a first charge on its fixed assets. If the state wants one, it takes a pari-passu first charge alongside (Para 13.11). Both are made “subservient to the charge or security interest of Banks/FIs” that fund the project. That reads as a concession to lenders, and it should make Semicon 2.0 projects easier to syndicate. The catch is in the next sentence: where ISM holds a second charge, the applicant must also give a corporate guarantee “for the full amount of the fiscal support”. A charge ranked behind bank lenders is, in substance, a second charge. Read together, the two clauses suggest that almost any bank-financed project should expect to put a group balance sheet behind the full central subsidy until the charge is released at commercial operation of the entire project (Para 13.12). For a single-project company without a strong parent, that guarantee may be the hardest condition in the document.

Cost overruns stay with the promoter. Support is fixed on the eligible capex written into the approval letter (Para 9.4). Spending can move between approved line items, for exchange-rate swings, technology upgrades or specification changes, as long as the total stays within that approved figure (Para 10.5). The project report must be in rupees at RBI reference rates (Para 13.14). For a plant that imports most of its tools, a weaker rupee between approval and delivery is therefore a promoter’s cost, not the scheme’s.

Buying from your own group is allowed, with scrutiny. Equipment bought or leased from group companies or related parties needs supporting certificates under the Companies Act, Income Tax Act and accounting standards. If a later assessment revalues the transaction, the excess subsidy comes back with interest (Paras 11.1 and 11.2). Conglomerates that route tools through a trading affiliate should price those transfers at arm’s length from the start.

ISM may also allow reimbursement instead of pari-passu payment “under special circumstances” (Para 10.9), though the guidelines do not say what those are.

The most consequential paragraphs in the guidelines are five short ones under “Other conditions”. They quietly redraw where some projects sit in the gazette’s table.

Epitaxial wafers move from a ₹50 crore floor to a ₹500 crore floor. The gazette’s Pillar 2 raw-materials row lists “Wafer” among the materials eligible at a ₹50 crore minimum investment and 30% support. The guidelines rule that “epitaxial wafer manufacturing facility shall be considered for fiscal support under the category of Compound Semiconductor Fab” (Para 5.5). That category requires ₹500 crore of capex, ₹200 crore of prior revenue and 500 wafer starts a month, in exchange for a higher 35% rate. For an epi-wafer startup that had pencilled in the ₹50 crore route, the entry bar just rose tenfold. The guidelines do not say whether other wafer types, such as polished or reclaimed silicon wafers, stay in the cheaper row.

Module assembly rides on packaging, at the lower rate. Semiconductor packaging combined with module manufacturing is allowed, “However, the incentive for module manufacturing will be the incentive applicable to legacy packaging. An application only for module manufacturing shall not be eligible” (Para 5.3). Legacy packaging pays 25%. An advanced-packaging applicant that adds a module line gets 35% on the packaging share and 25% on the module share. Display module manufacturing is out entirely (Para 5.4).

Integrated plants are costed piece by piece. A fab-plus-packaging or packaging-plus-module project must break its costs out by component in the project report, and support is calculated pro-rata at each component’s rate (Para 5.2). An application covering both a fab and an ATMP unit must clear the higher of the two categories’ capex and revenue thresholds (Para 3.4).

The guidelines also define an equipment R&D facility, the Pillar 2 row with a ₹300 crore floor, as one that develops, tests and improves the equipment and subsystems used to make, test or package chips and displays (Para 5.1). Its building and equipment count as capex. Its R&D spending, under Para 4.1, does not.

Our earlier reading of the gazette argued that the MSME opportunity in Semicon 2.0 is on the purchase order, not the application form, and flagged one catch: the gazette sets no domestic-content floor for anchors. The guidelines do not add one. But for one group of applicants they create a paper trail that runs straight to Indian suppliers.

Pillar 2’s equipment row pays a production-linked incentive of 10%, 8%, 6%, 4% and 2% of bill-of-materials value “sourced from domestic manufactures”, for five years from FY 2028-29. The guidelines define domestic sourcing generously: parts “manufactured within India, using either domestically sourced or imported raw materials” (Para 2.11). An Indian machine shop working imported aluminium billet counts.

One drafting point matters to anyone modelling this PLI. The gazette ties the five years to the calendar, “starting from FY 2028-29”, not to each unit’s start of production. With the portal not yet open and every approval routed through the Cabinet, few equipment plants will be producing at scale by April 2028. If the 10%-to-2% tiers are read as fixed fiscal years, a unit that starts in FY 2030-31 would collect only the 4% and 2% years. Neither the gazette nor the guidelines settle this. The five tiers add up to 30 percentage points of BoM value over the full run; the last two add up to 6, one-fifth as much.

What it costs the supplier is documentation. For every PLI claim, each counted Indian supplier signs an Annexure-2 declaration naming its factory and attaching its production and sales of the part to the applicant, invoice-level sales data with HSN codes and related-party flags, and consumption of key raw materials per unit (Annexures 2A to 2C). The supplier also agrees to give ISM’s monitoring agency “any data, documentation third party certificate or clarification sought”. And the applicant, not the supplier, answers for whether a contract manufacturer is “actually producing the component/ sub-assembly in India” (Para 9.7).

For an Indian precision-engineering or electronics sub-assembly MSME, that is a sales point. An equipment maker’s PLI is worth more for every rupee of BoM it can document as made in India. Suppliers who can produce that paperwork cleanly on day one will be easier to buy from than those who cannot. Our semiconductor supply chain map lists the equipment sub-assemblies and consumables where that documentation would count, with the entry capex for each.

Semicon 2.0 money comes with obligations that outlast construction by years:

Obligation	Duration	Source
Promoter or group keeps at least 51% of equity with equal voting rights; controlling entity named at application	Term of the support agreement plus 3 years after the commercial operation date	Para 13.13
No merger, demerger, amalgamation or creditor scheme without ISM’s written approval	3 years after the commercial operation date	Para 13.8
Stay in commercial production	At least 3 years from start of commercial production for the whole project	Para 13.4
No sale, mortgage or charge on project assets outside the ordinary course	Until commercial production of the whole project	Para 13.10
Report changes in promoter shareholding or encumbrance	From application to 3 years after commercial production begins	Para 13.2
Fortnightly progress reports (within 5 days) and quarterly reviews (within 30 days)	Until commercial production; half-yearly after that	Para 12.2
No hiring of former ISM or appraisal-agency staff	2 years after they leave	Annexure-4

Breaches, false information, insolvency or abandonment trigger a refund of all support with interest at the three-year SBI MCLR, compounded (Para 13.7). The integrity undertaking in Annexure-4 adds blacklisting to that.

For Assam, one clause opens a door and another leaves it half shut. Para 13.5 is plain: “Fiscal Support, offered by the State Governments or any of its agencies or local bodies shall be over and above the fiscal support under the Scheme.” The guidelines also give the state a seat on the No-Lien Account agreement and a pari-passu charge on assets. The scheme is built to carry a state top-up.

Assam has one. The Assam Electronics (Semiconductor etc.) Policy 2023 offers an additional 40% of whatever capex assistance the Government of India approves. But that policy was written for Semicon 1.0. It names the Semicon 1.0 schemes as the gate for its top-up, and it defines eligible capex by reference to MeitY’s December 2021 memoranda, not the new definition. If the next OSAT investor at Jagiroad, where Tata’s packaging plant was approved under Semicon 1.0, applies under Semicon 2.0’s Category 8, neither document says whether the Assam 40% applies, or on which capex base it would be calculated.

There is a second-order effect too. Assam’s top-up is a share of the central amount, not of the project. Under Semicon 1.0’s 50% pari-passu support, 40% of the central share added 20% of capex, for a combined 70%. Under Semicon 2.0, the same formula applied unchanged gives:

Category 8 line	Central support	Assam top-up (40% of central)	Combined, as a share of eligible capex
Semicon 1.0 ATMP/OSAT (for comparison)	50%	20%	70%
Semicon 2.0 advanced packaging	35%	14%	49%
Semicon 2.0 legacy packaging	25%	10%	35%

The two schemes define eligible capex separately, so the rows are indicative rather than exactly comparable. The direction is not in doubt: a legacy-packaging project in Assam would see its combined capital support roughly halved, even if the state extends its policy without changing a word. Assam’s power-tariff, stamp-duty and payroll incentives sit outside this arithmetic. States that want to compete for the next wave of plants will have to decide whether to raise their own share.

They will be competing for projects already in the queue. The guidelines let an applicant change the project’s location after filing and before approval, subject only to ISM “assessing its impact on the project” (Para 13.1). A project filed for Gujarat or Uttar Pradesh can move to Assam mid-appraisal, and one filed for Assam can move away. That makes the state’s answer on its top-up a live commercial question, not a drafting one. Our comparison of Penang, Sanand and Morigaon sets out what else, beyond the subsidy, an OSAT investor weighs in that choice.

The Policy Explorer now carries each of these guideline terms, with paragraph references, on its Semicon 2.0 entries, alongside the Assam policy they will eventually have to be read with.