In a policy reset prompted by weak outcomes in the first phase, the government is set to expand its design-linked incentive (DLI) scheme under India Semiconductor Mission 2.0. Indian companies will be allowed to partner with global firms while retaining majority ownership.
Under the proposed structure, Indian firms can form consortiums with foreign players but will be required to hold at least 51% while the stakes of global partners will be capped at 49%, officials said. The move will also open the scheme to larger Indian companies, marking a shift from the earlier version that was restricted to startups and MSMEs.
The recast comes after the initial DLI scheme saw limited traction. As reported by FE, only 24 of around 60 applicants were approved, and just 5–6 firms were able to secure fabrication orders for their prototypes.
Startup Scale-Up Gap
Officials attributed the weak strike rate to structural issues in the startup ecosystem. Many applicants were engaged only in design and failed to secure approvals from product companies, while most lacked a stable client base and struggled to raise venture funding. The capital-intensive nature of chip design, particularly at the prototype and tapeout stages, further limited their ability to scale.
Crucially, none of the beneficiaries has so far claimed deployment-linked incentives, as designs have not reached commercialisation. This exposed a gap between early-stage design support and market deployment, officials said.
Against this backdrop, the government is seeking to bring in larger domestic firms and global expertise while retaining intellectual property within India. Companies such as L&T Semiconductor Technologies and global players have shown interest in participating in the revised scheme, which is expected to be rolled out by May-June.
“The idea is to go side by side with companies and support them as they scale,” officials said, indicating a more flexible approach under DLI 2.0.
Revised Incentives
The ministry of electronics and IT is also examining changes to the incentive structure. Under DLI 1.0, firms were eligible for reimbursement of up to 50% of design costs, capped at `15 crore, along with deployment incentives of 4–6% of net sales, capped at `30 crore. Industry feedback has flagged these limits as inadequate for a sector characterised by long gestation and high capital requirements.
The revised framework is likely to enhance or relax these ceilings, and may include support mechanisms better aligned with different stages of chip development.
Officials said the inclusion of Indian-led consortiums with global participation is expected to address capability gaps while ensuring domestic value capture. Ensuring majority Indian ownership is seen as critical to retaining intellectual property and building long-term design capabilities.
Chip design is considered the entry point into the semiconductor value chain and a key driver of value addition. The government’s push to recalibrate the DLI scheme is aimed at bridging gaps seen in the first phase and accelerating the creation of commercially viable design firms in India.