Why India Is Betting On Chip Design Startups With ₹1.25 Lakh Cr ISM 2.0
The Indian government is shifting its focus from semiconductor manufacturing to chip design, with a grant-plus-equity model for startups. The ₹1.25 Lakh Cr ISM 2.0 aims to support Indian startups in the chip design sector, with the government participating alongside priva…
Intelligence analysis by Llama
The Indian government is shifting its focus from semiconductor manufacturing to chip design, with a grant-plus-equity model for startups. The ₹1.25 Lakh Cr ISM 2.0 aims to support Indian startups in the chip design sector, with the government participating alongside private investors.
India is shifting its focus from making semiconductors to designing them. The government is helping startups by giving them money and taking a small part of their company. This will help more private investors join in and make the sector grow.
Analysis
Why India Is Changing Semiconductor Course
It may surprise some to know that India has long been recognised as a global semiconductor design hub. Startups like Mindgrove Technologies, NetraSemi, iVP Semi, Saankhya Labs, Morphing Machines, InCore Semiconductors, and BigEndian Semiconductors have bagged funding in recent years and capitalised on years of R&D to launch new designs.
According to industry estimates, more than 20% of the world’s semiconductor design engineers are based in India, with global companies including Qualcomm, NVIDIA, AMD, Intel, Texas Instruments, Synopsys and MediaTek operating large engineering centres in Bengaluru, Hyderabad, Delhi NCR and Chennai.
However, while Indian engineers have helped design some of the world’s most advanced chips, very few globally competitive Indian fabless semiconductor companies have emerged. One of the biggest constraints has been access to capital.
Unlike software startups that can iterate products quickly, semiconductor companies spend years building intellectual property before generating revenue. Tape-out costs alone can run into millions of dollars, while EDA tool licences and IP procurement significantly increase capital requirements.
Industry participants say ISM 2.0 acknowledges this financing gap by moving beyond a reimbursement-based grant system toward a model where the government can participate alongside private investors.
Explaining The DLI Scheme
The Design Linked Incentive (DLI) Scheme, launched under ISM 1.0, was India’s first dedicated programme to support semiconductor design companies. It provided financial incentives for design, reimbursement support for product development, and subsidised access to EDA tools and chip fabrication.
Since its launch in 2022, the programme has committed the support of ₹234 Cr for the chip design projects from 22 companies with a total project cost of ₹690 Cr . Several startups have benefited from the programme, using the support to move from concept to commercial chip development.
Mindgrove cofounder and CEO Shashwath T R said the company’s V2600 SoC was supported under DLI 1.0 (with a ₹15 Cr support) and that milestone-linked support under ISM 2.0 could better match the longer development cycles associated with semiconductor products.
Industry executives say DLI success has demonstrated that grants and access to EDA tools alone were insufficient to build globally competitive product companies. The government intends to act as a financial co-investor rather than a controlling shareholder, without seeking board seats or operational control.
The Road Ahead
Raja Manickam, founder and CEO of iVP Semi, believes this approach better aligns public and private capital, and added that combining grants with equity is a better approach than a pure grant model.
“If a startup is able to raise capital from venture investors, the government can match that investment on the same commercial terms. That reduces government risk while encouraging more private investment,” he said.
He added that government equity should remain modest and function like any other financial investor, rather than introducing additional oversight beyond what private investors would require.
Key points
- The Indian government is shifting its focus from semiconductor manufacturing to chip design.
- The ₹1.25 Lakh Cr ISM 2.0 aims to support Indian startups in the chip design sector.
- The government will participate alongside private investors, with a grant-plus-equity model.
- The shift in focus is expected to encourage greater participation from venture capital funds and other private investors.
- The government intends to act as a financial co-investor rather than a controlling shareholder.
The shift in focus from semiconductor manufacturing to chip design is expected to encourage greater participation from venture capital funds and other private investors, leading to the growth of the sector.
The government's participation in the sector may lead to a loss of control for private investors, potentially hindering the growth of the sector.
