Rs 1,27,500 crore and a stake in your startup: India’s new chip plan

The Indian government is putting real money and real ownership behind its semiconductor ambitions. The cabinet has approved Semicon 2.0, an outlay of Rs 1,27,500 crore that expands the country’s chip strategy well beyond fabrication and assembly plants, and introduces a new financing model built around milestone-linked funding and direct equity stakes rather than one-off grants.

The shift follows a hard lesson from the earlier Design Linked Incentive (DLI) scheme. India Semiconductor Mission (ISM) chief executive Amitesh Kumar Sinha told TOI that while many DLI-backed startups successfully built chip designs and proof-of-concepts, a large number of them ran out of runway trying to raise the hundreds of crores needed to get those designs qualified for production and taken to market.

“The real challenge begins after the design stage. That’s where capital requirements become very large, and traditional startup funding models often fall short,” Sinha said, explaining why the government is now stepping in with a phased structure: seed capital first, followed by much larger tranches once a startup clears specific technical and commercial milestones. An internal committee is still working out the finer details of the programme.

Sinha was careful to frame the government’s role as a temporary, hands-off backer rather than a controlling shareholder. Under the plan, the Centre’s equity stake will generally stay below 50%, it will not take board seats, and it will not get involved in day-to-day management — leaving founders in charge of running their companies. Once a startup is established, founders can buy back the government’s stake, and the company stays free to raise outside capital or pursue acquisitions at any point.

“We will exit at the prevailing valuation, recover our investment and reinvest that capital into the next generation of semiconductor startups,” Sinha said, adding that the government’s objective is to support startups and build the ecosystem rather than generate returns for itself.

The move puts India in step with a broader global trend of governments taking equity in place of pure subsidies for strategically important technology firms. In the US, the Trump administration converted part of Intel’s CHIPS Act grants into a passive 9.9% equity stake, without taking any management control of the company — a precedent that mirrors the hands-off structure India’s new scheme is aiming for.

[Wikimedia Commons/by Kevin CW Lu]