India: Semiconductor push and INR funding dynamics – Commerzbank

Commerzbank’s economists highlight India’s new USD13.3bn India Semiconductor Mission 2.0, aimed at building a full-stack semiconductor ecosystem, though they judge near-term growth impact as limited. In FX, USD/INR has trended higher with stronger global Oil prices, while RBI-encouraged Dollar deposit inflows, potentially reaching USD30bn, have offered some INR support but drawn regulatory scrutiny from the UAE.

Industrial policy and currency funding flows

"India announced a new USD13.3bn fund under the India Semiconductor Mission 2.0 (ISM 2.0) to further develop its semiconductor industry. ISM 2.0 builds on the original ISM launched in 2021, which earmarked USD10bn to support greenfield semiconductor investments."

"Under ISM 2.0, chip design firms will receive grants and equity investment, while semiconductor materials and equipment manufacturers will qualify for a flat 30% incentive."

"The announcement marks another step in India's efforts to strengthen its manufacturing base and semiconductor industry. However, the near-term impact is likely to be limited. Under ISM 1.0, only three of the 12 approved manufacturing projects are operational, while several others are not expected to be completed until 2029."

"In FX, USD/INR rose 0.1% to 96.26 yesterday and has trended higher since late June, reflecting higher global crude oil prices. Yesterday, the Reserve Bank of India (RBI) reportedly urged major banks to step up efforts to attract dollar deposits. This echoed Finance Minister Nirmala Sitharaman’s call earlier this week."

"Reports suggest banks have mobilized around USD10bn in deposits so far, with inflows potentially reaching USD30bn by 30 September. While these inflows had provided some support for the INR, the initiative has attracted scrutiny from the Central Bank of the UAE."