Govt to hold equity in chip startups under Semicon 2.0, ISM chief reveals why

On Wednesday, the Union cabinet approved Semicon 2.0, a semiconductor scheme worth Rs 1,27,500 crore that expands India’s chip strategy beyond fabrication and assembly and introduces a new way of funding startups: milestone-linked capital combined with direct government equity, alongside venture capital firms.

India Semiconductor Mission (ISM) chief executive Amitesh Kumar Sinha told TOI that the new framework was designed around the unique capital needs of semiconductor companies, whose funding requirements extend well beyond the design stage — unlike software startups, which can reach market with comparatively little capital.

The change is rooted in what officials learned from the earlier Design Linked Incentive (DLI) scheme. Several startups under DLI built working chip designs and proof-of-concepts, Sinha said, but many of them struggled to raise the hundreds of crores required for product qualification, commercialisation and large-scale deployment once the design phase was done.

To fix that gap, the government is building a phased funding structure: startups will first get seed capital, then move into significantly larger investment rounds as they meet specific technical and commercial milestones. An internal committee is currently working out the exact contours of the programme.

Sinha said the government intends to be a limited, temporary shareholder rather than a controlling one — the Centre’s equity stake will generally stay below 50%, it will avoid board representation, and it will not get involved in day-to-day management, leaving founders with full operational control. Founders will later have the option to buy back the government’s stake, and 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. Govt is not here to make money. Our objective is to support startups and build the ecosystem,” Sinha said.

India’s approach mirrors a wider global pattern of governments swapping grants for equity in strategically important tech sectors — including the US, where the Trump administration converted part of Intel’s CHIPS Act grants into a passive 9.9% equity stake while leaving management control with the company.

[Wikimedia Commons/by Kevin CW Lu]