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The Indian government is preparing to take equity stakes in semiconductor startups under the newly approved Semicon 2.0 programme, signalling a major shift in the way it supports the country's chip industry.
Instead of relying primarily on one-time grants, the Centre plans to co-invest alongside venture capital (VC) firms, providing funding to promising startups while allowing founders to retain operational control. The move is aimed at strengthening India's semiconductor design ecosystem and attracting greater private investment into one of the country's most strategic sectors.
The policy is part of the broader India Semiconductor Mission (ISM) 2.0, which received Cabinet approval earlier this week with an outlay of Rs. 1.27 lakh crore to expand domestic semiconductor manufacturing, chip design, packaging, research and supply-chain capabilities.
According to the new scheme, eligible semiconductor startups that manage to obtain funding from private venture capital firms would also get matching investment from the government on the basis of an equity model. As opposed to conventional government funding schemes, the government would not look for board representation or management control in the case of these startups.
It is also understood that the Centre plans to withdraw from its investments in such companies as they grow or obtain additional funding and use this money for other semiconductor companies. More mature and larger companies would be helped through the payment of royalty.
Semicon 2.0 gives more importance to developing every link in the value chain associated with semiconductors, such as the design of semiconductors, semiconductor packaging, materials, equipment manufacturing, research, and skilled labor.
The Indian government anticipates the initiative to build a strong ecosystem for India at home, reduce its reliance on foreign technology, and make India a viable competitor in the global semiconductor market.
Speaking at a media interaction on Wednesday, India Semiconductor Mission (ISM) CEO Amitesh Kumar Sinha said, “The government will also match the amount brought in by investors. The Centre would invest on the same commercial terms and hold the same class of equity as private investors.”
Unlike a traditional shareholder, however, the government will remain a financial investor.
“We don’t want to interfere in their day-to-day working,” Sinha said when asked whether the Centre would seek board representation. Detailed operational guidelines for the programme will be issued separately.”
“When the revenue starts flowing, we’ll take back 1.5 times the amount the government has given,” Sinha said.
This move demonstrates a realization that research and development in semiconductors is a process requiring patience and long-term investments. Semiconductor companies usually take many years before they become profitable because they need to develop innovative products first.
As venture capital funds share risks with the government, there might be increased private financing available for young enterprises, as well as a more stable financial situation at the startup stage of their development. It is thought that the system might lead more entrepreneurs to develop semiconductors, because India already has an engineering workforce to do it.
Also Read: Semiconductor Dreams: Can India Build a Chip Industry From Scratch?
In addition to helping fund individual firms, the policy indicates a more fundamental shift in India’s industry approach. No longer simply an incentive provider, the Indian government is trying to build its image as a long-term ecosystem creator by making equity investments in fostering innovation and recycling government money back into the economy.
Should the strategy work out, there will be a steady flow of domestic semiconductor firms able to provide products for such industries as artificial intelligence, electric cars, telecommunications, and defense. In an age when the whole world is competing to ensure stable supplies of chips, it is clear that India is not just trying to become a manufacturing location, but also an innovator.
