The Indian government is redesigning its support for semiconductor startups, moving away from one-time grants to a model of larger, milestone-linked funding coupled with equity investments alongside venture capital firms, according to a report by Aabhas Sharma in Business Today. The Cabinet approved Semicon 2.0 with an outlay of Rs 1,27,500 crore, expanding India's semiconductor strategy beyond fabrication and assembly.
The Problem: Patient Capital Needs
India Semiconductor Mission (ISM) chief executive Amitesh Kumar Sinha told TOI that semiconductor startups need patient capital. "Unlike software companies, they require substantial investments before they can bring products to market," Sinha said. The real challenge begins after the design stage, where capital requirements become very large and traditional startup funding models often fall short.
The Solution: Phased Funding with Equity
To address this, the government is working on a phased funding structure. Startups will initially receive seed capital, followed by significantly larger investments as they achieve predefined technical and commercial milestones. An internal committee is finalising the contours of the programme.
The Centre will generally keep its equity stake below 50%, avoid board representation and stay away from day-to-day management so that founders retain operational control. As startups mature, founders will have the option of buying back the government's stake, while companies remain free to raise fresh capital or pursue acquisitions. "We will exit at the prevailing valuation, recover our investment and reinvest that capital into the next generation of semiconductor startups," Sinha said.
| Aspect | Detail |
|---|---|
| Policy | Semicon 2.0 |
| Outlay | Rs 1,27,500 crore |
| Funding model | Milestone-linked grants + equity |
| Max govt equity | Below 50% |
| Board representation | None |
| Exit mechanism | Buyback by founders or sale at prevailing valuation |
Key Lessons Learned
One of the biggest lessons from the Design Linked Incentive (DLI) scheme, Sinha said, was that while several startups successfully developed chip designs and proof-of-concepts, many struggled to raise the hundreds of crores needed for product qualification, commercialisation and large-scale deployment. The new framework reflects the unique capital requirements of semiconductor companies whose funding needs extend well beyond the design stage.
Global Context
Sinha noted that the proposed model comes at a time when governments globally are increasingly experimenting with equity-based support for strategically important technology companies instead of relying solely on grants and subsidies. In the US, the Trump administration converted a portion of Intel's CHIPS Act grants into an equity investment, taking a passive 9.9% stake while leaving management control with the company.
The policy shift underscores India's commitment to building a self-reliant semiconductor ecosystem, addressing the critical funding gap that has hindered startups from moving from design to commercial deployment. For enterprise technology decision-makers, this signals a more robust pipeline of indigenous semiconductor solutions that could reduce supply chain vulnerabilities and foster innovation in areas such as AI hardware, IoT devices, and connectivity modules critical for logistics and trade technology.
