In the second phase of India Semiconductor Mission (ISM), the government has widened the scope of incentives, lowered its funding share for mature segments and redesigned the Design Linked Incentive (DLI) scheme to attract larger companies and private capital. S Krishnan, secretary, Ministry of Electronics & IT (MeitY), speaks to Ojasvi Gupta on the roadmap. Excerpts:
Q. With the incentive outlay for ISM 2.0 substantially increased, how many approvals are you targeting this time?
A. We are looking at a minimum of one complementary metal-oxide-semiconductor (CMOS) fab, one display fab, two to three compound semiconductor fabs and advanced packaging capacity. That translates into around four to five fabs under this phase, apart from projects that may be approved under other categories.
Q. What was the rationale behind moving away from the uniform 50% incentive strucure?
A. When ISM 1.0 was launched, India had no semiconductor manufacturing units, so a uniform 50% government support was necessary to create confidence among investors. That situation has changed. We now have better visibility on the support states are willing to provide and can calibrate central assistance accordingly. Instead of a flat incentive, we have introduced differentiated support. Silicon fabs will receive 40%, advanced packaging and certain other fabs 35%, equipment makers and material suppliers 30%, and conventional packaging 25%, reflecting the maturity of each segment. We already have around eight conventional packaging units, so that category requires a lower level of support.
Q. Equipment makers have been included as a separate category for the first time. Which areas are you looking to encourage?
A. We have deliberately kept the category broad rather than prescribing specific segments. Once applications come in, we will evolve a detailed evaluation framework based on the proposals we receive.
Q. Under DLI 1.0, companies struggled to qualify for deployment-linked incentives because commercialising chip design proved difficult. What changes have been made?
A. DLI 2.0 is based on a different philosophy. There were three key issues with the earlier scheme. First, the funding ceiling of about Rs 15 crore upfront and Rs 35 crore after deployment, Rs 50 crore in total, was often inadequate because chip development costs can be significantly higher. Second, eligibility was restricted to startups, MSMEs and entrepreneurs, excluding larger Indian companies that are better placed to undertake capital-intensive semiconductor design. Third, Overseas citizens of India (OCIs), including experienced professionals returning from Silicon Valley, were not eligible. DLI 2.0 expands eligibility to include domestic companies and OCIs, alongside startups and MSMEs.
Q. How do you plan to fund this broader scheme given the constraints on direct government support?
A. Expanding support requires significantly more capital than grants alone can provide. If you look at Silicon Valley, semiconductor innovation has been driven largely by venture capital. Our objective is to crowd in private investment rather than rely only on government funding. The model we are proposing is to co-invest alongside RBI-whitelisted deep-tech venture funds. Since such funds invest across multiple sectors, we will track the capital they deploy specifically in semiconductor design and co-invest in those companies. This enables greater funding for startups while ensuring investment decisions are made by professional fund managers rather than the government.
Q. Does the government have a defined exit strategy from these investments?
A. There cannot be a uniform exit framework. We are not seeking management control in these companies. The timing of our exit will depend on the stage of each business and will be decided on a case-by-case basis.
Q. There is growing discussion globally around 7nm and 2nm technologies, while India’s current projects are focused on legacy nodes. How do you view that roadmap?
A. Advanced-node manufacturing is significantly more expensive, with costs roughly doubling as you move from 28nm to 14nm, then to 7nm and beyond. Acquiring those technologies today would require enormous investment without corresponding returns because India is still building its semiconductor manufacturing ecosystem. Our priority is to establish manufacturing capability and create an ecosystem first. There are three reasons we are not chasing cutting-edge nodes immediately: the cost, the technological complexity, and the fact that nearly 70% of global semiconductor demand continues to be for legacy nodes. That market is currently dominated by China. Countries such as Japan, South Korea and the US are competing in the 1-2nm space. Our objective is to emerge as a credible alternative in legacy-node manufacturing rather than compete directly at the leading edge today.